-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JZQV5/OesFgKcTSB4iGDjH5BT3z1Zq+uSwK0SUnS/k7wpiDCUGb44yw8OZFijlHn t2pXHVGknu5Zlx42t4+8Cg== 0001012870-98-002472.txt : 19980925 0001012870-98-002472.hdr.sgml : 19980925 ACCESSION NUMBER: 0001012870-98-002472 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980924 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYMMETRICOM INC CENTRAL INDEX KEY: 0000082628 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 951906306 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-02287 FILM NUMBER: 98714397 BUSINESS ADDRESS: STREET 1: 2300 ORCHARD PARKWAY CITY: SAN JOSE STATE: CA ZIP: 95131-1017 BUSINESS PHONE: 4084287813 MAIL ADDRESS: STREET 1: 2300 ORCHARD PARKWAY CITY: SAN JOSE STATE: CA ZIP: 95131-1017 FORMER COMPANY: FORMER CONFORMED NAME: SILICON GENERAL INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: REDCOR CORP DATE OF NAME CHANGE: 19820720 10-K 1 FORM 10-K - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 1998 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 0-2287 ---------------- SYMMETRICOM, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA NO. 95-1906306 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 2300 ORCHARD PARKWAY, SAN JOSE, CALIFORNIA 95131-1017 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 943-9403 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, NO PAR VALUE (TITLE OF CLASS) ---------------- INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [_] INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K ((S)29.405 OF THIS CHAPTER) IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [_] The aggregate market value of the voting stock held by non-affiliates of the registrant at September 10, 1998 was approximately $76,032,192. The number of shares outstanding of the registrant's Common Stock at September 10, 1998 was 15,798,897. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Symmetricom, Inc. Proxy Statement for the 1998 Annual Meeting of Shareholders filed with the Commission on or about September 23, 1998 are incorporated by reference into Part III of this Annual Report on Form 10-K. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- The trend analyses and other non-historical information contained in this Form 10-K are "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor provisions of those Sections. Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," and similar expressions identify such forward looking statements. Such forward looking statements include, without limitation, statements concerning the Company's future net sales, net earnings and other operating results. The Company's actual results could differ materially from those discussed in the forward looking statements due to a number of factors including, without limitation, the factors listed in "Management's Discussion and Analysis of Financial Condition and Results of Operations--Business Outlook and Risk Factors" included below in Part II, Item 7. PART I ITEM 1. BUSINESS Symmetricom, Inc. (the "Company") was incorporated in California in 1956. The Company conducts its business through two separate operations, each of which operates in a different industry segment. Telecom Solutions, a division of the Company, designs, manufactures and markets advanced network synchronization systems and intelligent access systems for the telecommunications industry. Linfinity Microelectronics Inc. (Linfinity), a subsidiary of the Company, designs, manufactures and markets linear and mixed signal integrated circuits as well as systems-engineered modules primarily for use in power management and communication applications in commercial, industrial, and defense and space markets. TELECOM SOLUTIONS Telecom Solutions offers a broad range of time and frequency reference, or synchronization, systems and intelligent access, or transmission, systems for the worldwide telecommunications industry. Synchronization Reliable synchronization is fundamental to telecommunications services, as it ensures error-free transmission of data throughout a network. Synchronization allows digital switching and transmission systems to operate at a common, or synchronized, clock rate, thereby minimizing signal degradation. Poor synchronization can cause digital signal impairments such as jitter, wander and phase transients, resulting in loss of data, decreased network efficiency and increased costs for the network operator. High quality synchronization is an essential requirement for telecommunications service providers as they move to high capacity, high speed digital transmission technologies such as the Synchronous Optical Network (SONET) and the Synchronous Digital Hierarchy (SDH) network. Synchronization also plays a critical role in many Asynchronous Transfer Mode (ATM) equipment applications. The Company's core synchronization products consist principally of Digital Clock Distributors (DCDs) based on quartz, rubidium and Global Positioning System (GPS) technologies, which provide highly accurate and uninterruptible timing that meets the synchronization requirements of digital networks. Telecom Solutions has established itself as a leader in telephone network synchronization and has introduced a series of DCDs and related products. These products provide for the generation of a stable primary timing reference and distribution of that timing reference throughout a network, enabling telecommunications service providers to synchronize precisely such diverse telephone network elements as digital switches, digital cross-connect systems and multiplexers for customers who are dependent upon high quality data transmission. Telecom Solutions' DCD product family consists of three product platforms: the DCD 500 Series, the DCD Local Primary Reference (LPR) Series, and the GPS 1100 Series. The DCD 500 Series is a third generation synchronization and timing distribution platform that provides the accurate clock references needed throughout a 2 network to ensure reliable synchronization. The DCD filters the input timing signal to virtually eliminate digital signal impairments. If the input timing reference is lost or out of tolerance, the clock provides highly stable backup timing, or "holdover," to allow the network to operate error-free for several hours or days, depending on the accuracy of the installed clock. The platform can be equipped with additional cards to provide interfaces for a variety of applications, including network management, synchronization performance monitoring, and status and control measurement, which are becoming increasingly important for network maintenance and revenue protection. The Maintenance Interface System (MIS) card provides a communications gateway for both local maintenance personnel and remote network management systems, gathering all system alarm information in real time. The Precision Synchronization Monitor (PSM) card provides synchronization and performance monitoring, detecting early indications of network degradation and related troubles in network elements. The Multiple Reference Controller (MRC) card directly accepts up to four reference sources, based on cesium, local primary reference sources, local clock(s), and/or network feeds and selects the most desirable reference based on a number of quality parameters. The DCD 500 platform is designed to provide maximum flexibility and meets both domestic and international standards. The DCD-LPR Series provides the capability to effectively use either GPS or Long Range Navigation version C (LORAN-C) to provide direct Stratum 1 traceable synchronization to network sites equipped with DCD systems. The DCD- LPR employs an integrated, roof-mounted GPS antenna and Timing Receiver (GTR) to receive precision Universal Coordinated Time (UTC) timing signals from GPS satellites at virtually any location in the world or from LORAN-C radio stations in a number of locations in the world. The DCD-LPR is usually fitted with one or two GPS Timing Interface (GTI) cards, which receive timing inputs from the GPS receiver and output two T1 or E1 signals, and, optionally, time- of-day. For LORAN-C based timing, the LORAN-C Timing Interface card (LTI) provides similar functionality. The DCD-LPR can also be used with a Local Oscillator Unit (LOU) to provide a complete stand-alone timing generation and distribution system for facilities where a DCD 500 distribution system is unavailable or not needed. The GPS 1100 Series is a low-cost, compact timing unit that uses proprietary BesTime(TM) Multiple Input Frequency Locked Loop (MIFLL) technology to combine frequency inputs from GPS satellites, a built-in oscillator, and network T1 references to deliver a re-timed T1 reference with improved accuracy. GPS 1100 is designed for network locations where one or two key network elements need precise timing. The Company's ability to provide network management is essential as Telecommunications Management Network (TMN) standards, established by the International Telecommunications Union (ITU), have gained acceptance among major telecommunications service providers. Telecom Solutions has introduced TimeScan/TMN, a Unix-based TMN and Q3 compliant full element management system for synchronization networks, TimeScan/NMS, a Windows NT-based proprietary network management system, and TimeScan/Craft, a Windows 95-based local craft maintenance terminal. TimeScan/TMN and TimeScan/NMS provide scaleable, centralized real-time security monitoring, performance monitoring, fault management, remote configuration, and inventory of a synchronization network. The TimeScan/TMN graphical user interface presents status at the network level and at the element level, providing real-time representations of configuration and status of both logical and physical properties of the network. The TimeScan/NMS graphical user interface presents network status using hierarchical overviews of both logical and geographical network topologies. TimeScan/Craft is a local craft maintenance terminal designed to provide local management and maintenance of one DCD at a time. Each of these products features tools for identifying customer troubles before they affect service. In August 1993, the Company acquired Navstar Limited, a United Kingdom company, and its U.S. affiliate (collectively "Navstar"). Navstar designs, manufactures and markets GPS receivers and systems that use global positioning technology to provide a very accurate synchronization source, time-of-day information, and/or precise geographic location. A significant percentage of Navstar's GPS receivers is purchased for timing applications, including direct Navstar sales to the Digitally Enhanced Cordless Telephone (DECT) market and intercompany sales to Telecom Solutions for incorporation in its synchronization products. 3 Telecom Solutions synchronization systems are typically priced from $3,000 to $40,000. Navstar products are typically priced from $300 to $5,000. Transmission Products Telecom Solutions transmission products include Secure7(R), Secure7 Lite and the Integrated Digital Services Terminal (IDST). Secure7 is a multi-bandwidth, intelligent, fault-tolerant, digital transmission terminal that automatically reroutes disrupted high priority telephone data links such as those used in the Signaling System Seven (SS7) network and the 911 emergency network. Secure7 is designed to provide nearly 100% availability for these critical data applications. Secure7 Lite is designed to protect SS7 networks from switch isolations and simplex events and may be used as a standard replacement for channel banks in SS7 applications. Both Secure7 and Secure7 Lite make use of the Company's BestPath(TM) technology to take advantage of the existing SS7 network architecture to automatically route around problem areas and maintain links between network elements. The IDST is a network access system designed for use in telephone company central offices which has principally been deployed as a transmission, monitoring and test access vehicle for SS7 networks. The IDST provides maintenance personnel with flexible, centralized remote access to SS7 links for troubleshooting and performance verification, resulting in a comprehensive solution to the monitoring and transport of links requiring increased reliability. Transmission products are typically priced at less than $5,000 for a small system to more than $300,000 for a large system. The Company supplies its synchronization systems and transmission products predominantly to the Regional Bell Operating Companies (RBOCs), interexchange carriers, independent telephone companies, Competitive Local Exchange Carriers (CLECs), private network operators, wireless service providers and international telecommunications service providers. Navstar predominantly sells its products to Telecom Solutions, the U.S. Government and original equipment manufacturers (OEMs). LINFINITY MICROELECTRONICS INC. Linfinity products principally include linear and mixed signal integrated circuits (ICs) as well as systems-engineered modules primarily for use in power management and communication applications in commercial, industrial, and defense and space markets. ICs are generally divided into three categories: digital, linear (also referred to as analog) and mixed signal circuits. Digital circuits, such as memory devices and microprocessors, process and compute information in the form of "on-off" electronic signals represented by binary digits "1" or "0". Linear circuits process, monitor, measure or control continuous analog signals associated with physical functions such as temperature, pressure, sound, weight, light and speed, and play an important role in bridging real world phenomena and a variety of electronic systems. Analog devices are used in virtually all electronic systems. Some of the largest markets for such circuits are computers, data communications, telecommunications, industrial equipment, and military, consumer and automotive electronics. For each application, users often have unique requirements for circuits with specific speed, power, resolution and signal amplitude capabilities. Therefore, due to numerous applications, the demand for analog devices designed to manage real world functionality continues to grow and has resulted in a high degree of market fragmentation, which has provided an opportunity for smaller companies to compete against larger suppliers in certain market segments. Mixed signal ICs are circuits that combine both analog and digital signal processing techniques. The analog and mixed-signal market is served by three product types: standard linear IC's (SLICs), application specific standard products (ASSPs) and custom ICs. Linfinity is focused on the power management 4 segment of the overall market and competes with both SLIC and ASSP products. Linfinity's SLIC power management products include pulse width modulators (PWMs) which shape and manage the characteristics of voltage, low dropout regulators (LDOs) which convert unregulated input voltage to regulated output voltage with a minimum amount of overhead voltage, linear voltage regulators which control power supply output levels, supervisory circuits which monitor power supply, switching regulators which efficiently convert power by managing voltage and current and are used to power advanced microprocessors, and power factor correction ICs which reduce energy consumption in fluorescent lighting and other power management product applications. SLIC products are used in computer and data storage, lighting, automotive, telecommunications, test, instrumentation, and defense and space equipment. In recent years, the definition of power management has broadened to encompass other devices and modules, often ASSPs, which address particular aspects of power management, such as audio or display related ICs. Newer differentiated ASSP products at Linfinity include backlight inverters, Class D audio amplification ICs, and Small Computer Systems Interface (SCSI) terminators. The backlight inverters incorporate Linfinity's proprietary technology and are single-stage cold cathode fluorescent lamp inverter modules that provide dimmable backlighting for Liquid Crystal Display (LCD) products. Class D audio amplification ICs provide high-quality sound reproduction with small form-factor and improved efficiency for sophisticated multi-media and wireless applications. Linfinity's SCSI terminators, both Single Ended (SE) and Low Voltage Differential (LVD), enable high data transfer rates between computers and various peripheral devices such as hard disk drives, host adapter cards, motherboards, bus extenders, cables and connectors. Linfinity's marketing strategy has been one of leveraging its custom and military programs first into higher volume SLIC opportunities, followed by market entries with several ASSP products. Linfinity now offers a catalog of approximately 450 standard catalog products and has introduced numerous ASSPs. However, the market for new products sold by Linfinity has been very competitive and characterized by pricing pressures. Linfinity has developed bipolar wafer fabrication processes in its in-house manufacturing facility which provide a range of high-voltage processes for certain power management applications. In addition, Linfinity has developed bipolar complementary metal oxide semiconductor (BiCMOS) wafer fabrication processes. The BiCMOS process combines the high-performance bipolar process with a CMOS process for mixed signal applications such as certain power management ICs. However, because Linfinity's in-house BiCMOS wafer fabrication capacity is limited, the Company utilizes IMP, Inc., an outside semiconductor fabrication facility, for most of its BiCMOS wafer requirements. Reliance on outside fabrication facilities minimizes fixed costs and capital expenditures but increases certain operational risks, including the lack of an assured wafer supply and limited control over delivery schedules and manufacturing yields. See Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations--Business Outlook and Risk Factors--Dependence on Foundries, Assembly and Test Services." Linfinity products are generally priced from $0.20 to $5.00 for commercial and industrial applications, $2.50 to $22.00 for defense applications and $100 to $500 for high reliability space applications. Linfinity sells its products in the commercial, industrial, and defense and space markets to OEMs and distributors. In July 1998, the Company began a process to identify alternatives to broaden Linfinity's market access for its products and to provide greater financial resources for executing Linfinity's marketing strategy. The Company has engaged BT Alex. Brown Inc. to assist in evaluating potential partnerships that address these goals. INDUSTRY SEGMENT INFORMATION Information as to net sales, gross profit margin, research and development expense, selling, general and administrative expense, operating income (loss), identifiable assets, accounts receivable (net), inventories (net), depreciation and amortization expense, and capital expenditures attributable to each of the Company's two industry segments for each year in the three-year period ended June 30, 1998, is contained in Note J of the Notes 5 to Consolidated Financial Statements. See Part IV, Item 14. "Exhibits, Financial Statement Schedule and Reports on Form 8-K." MARKETING In the United States, Telecom Solutions markets and sells most of its products through its own sales force to the RBOCs, major interexchange carriers, independent telephone companies, CLECs, private network operators and wireless service providers. Internationally, Telecom Solutions markets and sells its products to telecommunications service providers through its own sales force in the United Kingdom and independent sales representatives and distributors elsewhere. In the United States and internationally, Linfinity sells its products through its own sales force and independent sales representatives to OEMs and distributors. LICENSING AND PATENTS The Company incorporates a combination of trademark, copyright and patent registration, contractual restrictions and internal security to establish and protect its proprietary rights. The Company has United States and international patents and patent applications pending covering certain technology used by its Telecom Solutions and Linfinity operations. In addition, both operations use technology licensed from others. However, while the Company believes that its patents have value, the Company relies primarily on innovation, technological expertise and marketing competence to maintain its competitive advantage. The telecommunications and semiconductor industries are both characterized by the existence of a large number of patents and frequent litigation based on allegations of patent infringement. The Company intends to continue its efforts to obtain patents, whenever possible, but there can be no assurance that patents will be issued or that any existing patents or patents that are obtained will not be challenged, invalidated or circumvented or that the rights granted will provide any commercial benefit to the Company. Additionally, if any of the Company's processes or designs are identified as infringing upon patents held by others, there can be no assurances that a license will be available or that the terms of obtaining any such license will be acceptable to the Company. MANUFACTURING The Telecom Solutions manufacturing process consists primarily of in-house electrical assembly and test performed by the Company's subsidiary in Aguada, Puerto Rico. Additionally, the Company's subsidiary, Navstar, in England performs in-house electrical assembly and test of its GPS receivers and products. The Linfinity manufacturing process consists primarily of bipolar wafer fabrication, component assembly and final test. Its bipolar ICs are principally fabricated in the Company's wafer fabrication facility in Garden Grove, California. Linfinity also utilizes outside services to perform certain operations during the fabrication process. In addition, Linfinity utilizes IMP, Inc., an outside semiconductor fabrication facility, for most of its BiCMOS wafer requirements. Component assembly and final test are performed in Southeast Asia by independent subcontract manufacturers or in Garden Grove by Linfinity employees. Reliance on independent assembly and test subcontractors can lengthen manufacturing cycle times, especially if the Company is required to compete against other manufacturers for these contractors' services. The manufacturing of Linfinity's ICs is a highly precise and complex process. Minute impurities, contaminants, errors or difficulties in the manufacturing process, defects in the masks used to print circuits on a wafer, or equipment failure among other factors can cause a substantial number of wafers to be rejected or numerous die on each wafer to be nonfunctional. There can be no assurance that current manufacturing yields can be maintained or that better yields will be achieved in the future. The Company primarily uses standard parts and components as well as standard subcontract assembly and test, which are generally available from multiple sources. The Company, to date, has not experienced any significant delays in obtaining needed standard parts, single source components or services from its suppliers but there can be no assurance that such problems will not develop in the future. However, the Company maintains a 6 reserve of certain ICs and certain single source components and seeks alternative suppliers where possible. The Company believes that a lack of availability of ICs or single source components would have an adverse effect on the Company's operating results. See Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations-- Business Outlook and Risk Factors--Dependence on Foundries, Assembly and Test Services." BACKLOG The Company's backlog was approximately $15.2 million at June 30, 1998 compared to approximately $26.2 million at June 30, 1997. Backlog consists of customer orders which are expected to be shipped within the next twelve months. The Company does not believe that current or future backlog levels are meaningful indicators of future net sales. Most orders included in backlog can be rescheduled or canceled by customers without significant penalty. Telecom Solutions' backlog was approximately $6.3 million and $7.3 million at June 30, 1998 and 1997, respectively. Historically, a substantial portion of Telecom Solutions' net sales in any fiscal period has been derived from orders received during that fiscal period. Linfinity's backlog was approximately $8.9 million and $18.9 million at June 30, 1998 and 1997, respectively. The semiconductor industry has recently experienced a change towards significantly shorter lead times resulting in an increased dependence by Linfinity upon orders received and shipped during the same quarter. Linfinity's backlog may be affected by the cancelation or delay of customer orders, the overall condition of the semiconductor industry, overall worldwide economic conditions and the cyclical nature of customer demand in each of its markets. See Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations--Business Outlook and Risk Factors." KEY CUSTOMERS AND EXPORT SALES No customer accounted for 10% or more of the Company's net sales in fiscal years 1998 and 1996. In fiscal 1997, one of Telecom Solutions' customers, AT&T Corporation, accounted for 16% of the Company's total net sales. The Company's export sales, which were primarily to the Far East, Western Europe, Canada and Latin America accounted for 27%, 26% and 28% of the Company's net sales in fiscal years 1998, 1997 and 1996, respectively. Export sales to the Far East accounted for 12%, 16%, and 13% of the Company's net sales in fiscal years 1998, 1997 and 1996, respectively. International sales may be subject to certain risks, including but not limited to, foreign currency fluctuations, export restrictions, longer payment cycles and unexpected changes in regulatory requirements or tariffs. See Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations--Business Outlook and Risk Factors--Risks Associated with International Sales." Gains and losses on the conversion to U.S. dollars of foreign currency accounts receivable and accounts payable arising from international operations may in the future contribute to fluctuations in the Company's business and operating results. Sales and purchase obligations denominated in foreign currencies have not been significant. Accordingly, the Company does not currently engage in foreign currency hedging activities or derivative arrangements but may do so in the future to the extent that such obligations become more significant. Additionally, currency fluctuations could have an adverse effect on the demand for the Company's products in foreign markets. COMPETITION The telecommunications and semiconductor industries and the markets which they serve are highly competitive. Many of the Company's competitors or potential competitors are more established than the Company and have greater financial, manufacturing, technical and marketing resources. In the telecommunications market, Telecom Solutions' primary competitors are Datum Inc. and Hewlett-Packard Company. In addition, the enactment of The Telecommunications Act of 1996, which permits RBOCs, under certain conditions, to manufacture telecommunications equipment may result in competition from these customers of the Company. In the semiconductor market, Linfinity competes with a number of large multinational companies and smaller niche companies. In addition, as part of its license and supply agreement 7 with Linfinity, IMP, Inc. has the right to manufacture, market and sell the SCSI line of products through its own sales force in direct competition with Linfinity. Telecom Solutions competes primarily on product reliability and performance, product features, adherence to standards, customer service and price. Linfinity competes primarily on price, product reliability and performance, delivery time, and customer service. Product life cycles in the semiconductor industry typically experience declining average selling prices (ASPs) over the life of a product. Several of the Company's product lines, including LDOs and PWMs, are undergoing such price erosion. Linfinity's response has been to increase the volume of units shipped and introduce new products with higher ASPs, but there can be no assurance that the Company will be able to fully offset the impact of future declines in ASPs. The Company believes that both Telecom Solutions and Linfinity have generally competed favorably with respect to their respective competitive factors, except in limited segments of the semiconductor market where Linfinity products are under extreme price pressure due to intense price competition. There can be no assurance that either Telecom Solutions or Linfinity will be able to compete successfully in the future. The Company's ability to compete successfully is dependent upon its response to the entry of new competitors, the average selling prices received for its products, changing technology and customer requirements, development or acquisition of new products, the timing of new product introductions by the Company or its competitors, continued improvement of existing products, changes in overall worldwide market and economic conditions, cost effectiveness, quality, service and market acceptance of the Company's products. RESEARCH AND DEVELOPMENT The Company has actively pursued the application of new technology in the industries in which it competes and has its own staff of engineers and technicians who are responsible for the design and development of new products. In fiscal years 1998, 1997 and 1996, the Company's overall research and development expenditures were $18,810,000, $18,457,000 and $15,413,000, respectively. All research and development expenditures were expensed as incurred. At June 30, 1998, 93 engineering and engineering support employees were engaged in development activities. Telecom Solutions continued to focus its development efforts in fiscal year 1998 on new products as well as the enhancement of core synchronization and transmission products. The new product development program included wireline and wireless synchronization, network management software and core GPS, antenna and clock technologies. Telecom Solutions' research and development expenditures were $12,387,000, $12,866,000 and $9,581,000 in fiscal years 1998, 1997 and 1996, respectively. Linfinity focused its investment efforts in fiscal year 1998 on new product development, enhancement of existing products and design capabilities, and improvement of its wafer fabrication process technologies. Its new product development program has been focused heavily on ASSPs and other desktop power management products. Linfinity's product development program is dependent upon its ability to recruit and retain design and applications engineers. Linfinity's research and development expenditures were $6,423,000, $5,591,000 and $5,832,000 in fiscal years 1998, 1997 and 1996, respectively. The Company will continue to have significant research and development expenditures in order to maintain its competitive position, although there can be no assurance that the Company will be able to successfully develop new products or enhance existing products or that such new or enhanced products will achieve market acceptance. GOVERNMENT REGULATION The telecommunications industry is subject to government regulatory policies regarding pricing, taxation and tariffs which may adversely impact the demand for the Company's telecommunications products. These policies are continuously reviewed and subject to change by the various governmental agencies. The Company is also subject to government regulations which set installation and equipment standards for newly installed hardware. 8 ENVIRONMENTAL REGULATION The Company's operations are subject to numerous federal, state and local environmental regulations related to the storage, use, discharge and disposal of toxic, volatile or otherwise hazardous chemicals used in its manufacturing process. Failure to comply with such regulations could result in suspension or cessation of the Company's operations, or could subject the Company to significant future liabilities. Although the Company periodically reviews its facilities and internal operations for compliance with applicable environmental regulations, such reviews are necessarily limited in scope and frequency and, therefore, there can be no assurance that such reviews have revealed or will reveal all potential instances of noncompliance. The liabilities arising from any noncompliance with such environmental regulations could materially adversely affect the Company's business, financial condition and results of operations. EMPLOYEES At June 30, 1998, the Company had 642 employees, including 345 in manufacturing, 115 in engineering and 182 in sales, marketing and administration. At June 30, 1998, Telecom Solutions had 426 employees and Linfinity had 216 employees. The Company believes that its future success is highly dependent on its ability to attract and retain highly qualified management, sales, marketing and technical personnel. Accordingly, the Company maintains employee incentive and stock plans for certain of its employees. Additionally, Linfinity maintains a separate employee stock option plan for certain Linfinity employees. No Company employees are represented by a labor union, and the Company has experienced no work stoppages. The Company believes that its employee relations are good. ITEM 2. PROPERTIES The following are the principal facilities of the Company as of June 30, 1998:
APPROXIMATE OWNED/LEASE FLOOR AREA EXPIRATION LOCATION PRINCIPAL OPERATIONS (SQ. FT.) DATE -------- -------------------- ----------- ------------- San Jose, California..... Symmetricom Corporate 118,000 April 2009 Offices and Telecom Solutions administration, sales, engineering and manufacturing Aguada, Puerto Rico...... Telecom Solutions 45,000 September manufacturing 1999 Aguada, Puerto Rico...... Telecom Solutions 22,000 September manufacturing 2000 Northampton, England..... Navstar administration, 18,000 April 1999 sales, engineering and manufacturing Garden Grove, California. Linfinity administration, 96,000 Owned sales, engineering and manufacturing Garden Grove, California. Linfinity wafer 9,000 Owned fabrication
During fiscal 1997, the Company leased a newly constructed 118,000 square foot facility in San Jose, California to replace its previous San Jose facility, for which the lease expired in July 1997. The Company has sublet approximately 35,000 square feet of this facility through November 2000. The Company believes that its current facilities are well maintained and generally adequate to meet short-term requirements. ITEM 3. LEGAL PROCEEDINGS In January 1994, a securities class action complaint was filed against the Company and certain of its present or former officers or directors in the United States District Court, Northern District of California. The action was filed on behalf of a putative class of purchasers of the Company's stock during the period April 6, 1993 through November 10, 1993. The complaint seeks unspecified money damages and alleges that the Company and certain of its present or former officers or directors violated federal securities laws in connection with various public statements made during the putative class period. The Court dismissed the first and second amended complaints with leave to amend. The plaintiff filed a third amended corrected complaint in August 1997. The Company filed a motion to dismiss this third amended complaint which was denied in January 1998. Discovery is proceeding. The Company and its officers believe that the complaint is entirely without merit, and intend to continue to defend the action vigorously. The Company is also a party to certain other claims in the normal course of its operations. While the results of such claims cannot be predicted with any certainty, management, after 9 consultation with counsel, believes that the final outcome of such matters will not have a material adverse effect on the Company's financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the security holders of the Company during the last quarter of the fiscal year ended June 30, 1998. EXECUTIVE OFFICERS OF THE COMPANY Following is a list of the executive officers of the Company as of September 1, 1998 and brief summaries of their business experience. All officers, including executive officers, are elected annually by the Board of Directors at its meeting following the annual meeting of shareholders. The Company is not aware of any officer who was elected to the office pursuant to any arrangement or understanding with another person.
NAME AGE POSITION ---- --- -------- Roger A. Strauch........ 42 Chief Executive Officer and Chief Financial Officer Mary A. Rorabaugh....... 39 Vice President, Finance and Secretary Thomas W. Steipp........ 49 President and Chief Operating Officer, Telecom Solutions James J. Peterson....... 43 President and Chief Operating Officer, Linfinity Microelectronics Inc.
Mr. Strauch has served as Chief Executive Officer and Chief Financial Officer of the Company since June 1998 and July 1998, respectively. In addition, Mr. Strauch is Chairman of the Board of The Roda Group, a venture development firm based in Berkeley, California. In June of 1997, Mr. Strauch retired from his position as Chairman of the Board and Chief Executive Officer of TCSI Corporation (TCSI), a telecommunications software company. Mr. Strauch co-founded TCSI in 1983 and served initially as the general manager of this Teknekron Corporation division. Once established as a separate corporation, Mr. Strauch was elected as TCSI's President in 1987 and, in addition, its Chief Executive Officer in 1989 and Chairman of the Board in 1996. For five years prior thereto, Mr. Strauch served as a senior staff engineer and project manager for Hughes Aircraft Company's Space and Communications Group. Mr. Strauch is on the Board of Directors of Ask Jeeves, an internet navigation company, NightFire Software, a telecommunications software company, and Plynetics Express, a rapid prototyping and tooling manufacturer. He is a member of the Board of Trustees of the Math Sciences Research Institute, the Industrial Advisory Board of the Department of Electrical Engineering and Computer Sciences at the University of California, Berkeley, and a member of Cornell University's College of Engineering Advisory Council. Ms. Rorabaugh has served as Vice President, Finance and Secretary of the Company since July 1998 and as Vice President, Finance of Telecom Solutions, a division of the Company, from April 1997 to June 1998. From April 1993 to March 1997, Ms. Rorabaugh served as Controller, Telecom Solutions. Prior to joining the Company, from April 1989 to March 1993, Ms. Rorabaugh was Director of Corporate Finance and Manager of Financial Planning at VLSI Technology, Inc., a semiconductor company. From April 1988 to March 1989, Ms. Rorabaugh was Division Controller for Conner Peripherals, Inc., a manufacturer of hard disk drives. From May 1984 to March 1988, Ms. Rorabaugh held various positions with VLSI Technology, Inc., including Operations Planning Manager, Manufacturing Controller and Senior Manufacturing Analyst. Previously, Ms. Rorabaugh was a consultant for two years with Putnam, Hayes, & Bartlett, Inc., a management consulting firm. Mr. Steipp has served as President and Chief Operating Officer, Telecom Solutions, a division of the Company, since March 1998. Prior to joining the Company, from February 1996 to February 1998, Mr. Steipp served as Vice President and General Manager of Broadband Data Networks, a division of Scientific-Atlanta. From January 1979 to January 1996, Mr. Steipp held various management positions in operations and marketing 10 with Hewlett-Packard. Mr. Steipp served as General Manager of the Federal Computer Division from January 1991 to January 1996 and Manager of Federal Sales & Marketing from August 1990 to January 1991. From January 1989 to August 1990, Mr. Steipp was Manager, Systems Integration Operations. Mr. Peterson has served as President and Chief Operating Officer for Linfinity Microelectronics Inc., a subsidiary of the Company, since February 1997. From August 1996 to February 1997, Mr. Peterson served as Vice President, Sales at Linfinity. Prior to joining the Company, from 1983 until August 1996, Mr. Peterson held various positions with Silicon Systems, Inc., a microelectronics company. From March 1992 to August 1996, Mr. Peterson served as Senior Vice President, Worldwide Sales & Corporate Communications. From June 1990 to March 1992, Mr. Peterson was the Vice President, International Sales. From January 1987 to June 1990, Mr. Peterson was Director, Far East Sales. From January 1983 to January 1987, Mr. Peterson was Product Marketing Manager, Telecommunications. Previously, Mr. Peterson was Product Marketing Engineer and Industry Marketing Specialist with Rockwell Corporation and General Instruments Microelectronics Division, respectively. 11 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The information required by this Item is described in Note K of the Notes to Consolidated Financial Statements. See Part IV, Item 14. "Exhibits, Financial Statement Schedule and Reports on Form 8-K." ITEM 6. SELECTED FINANCIAL DATA The following selected financial data should be read in conjunction with the Company's Consolidated Financial Statements and the Notes thereto included in Part IV, Item 14. "Exhibits, Financial Statement Schedule and Reports on Form 8-K," and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in Part II, Item 7.
YEAR ENDED JUNE 30, -------------------------------------------- 1998 1997 1996 1995 1994 -------- -------- -------- -------- ------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Operating Results: Net sales: Telecom Solutions $ 73,311 $ 89,718 $ 68,243 $ 62,814 $59,215 Linfinity Microelectronics Inc. 47,270 54,637 37,795 40,294 39,170 -------- -------- -------- -------- ------- Total 120,581 144,355 106,038 103,108 98,385 Operating income (loss) (5,121) 15,998 8,263 10,868 8,331 Earnings (loss) before income taxes (4,140) 17,337 9,476 11,599 8,125 Net earnings (loss) (1,530) 13,454 7,478 10,346 6,551 Basic earnings (loss) per share (.10) .85 .48 .71 .47 Diluted earnings (loss) per share (.10) .83 .47 .66 .43 Balance Sheet: Cash and investments 34,342 41,587 34,270 33,205 21,250 Working capital 55,556 58,325 55,522 50,739 38,503 Total assets 114,893 129,305 93,531 85,326 69,054 Long-term obligations 8,368 8,583 5,709 5,766 5,818 Shareholders' equity 84,357 87,603 70,403 60,125 46,786
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Company's consolidated financial statements and notes thereto. BUSINESS OUTLOOK AND RISK FACTORS Fluctuations in Operating Results. The Company's quarterly and annual operating results have fluctuated in the past and may continue to fluctuate in the future due to several factors, including, without limitation, the volume and timing of orders from customers and shipments to customers, the cancelation or rescheduling of customer orders, changes in the product or customer mix of sales, the gain or loss of significant customers, the Company's ability to introduce new products on a timely and cost-effective basis, level and value of the Company's inventories, the timing of new product introductions by the Company and its competitors, customer delays in qualification of new products, increased competition and competitive pricing pressures, fluctuations, especially declines, in the average selling prices received for its products, market acceptance of new or enhanced versions of the Company's and its competitors' products, the long sales cycles associated with the Company's products, cyclical conditions in the telecommunications and semiconductor industries, fluctuations in manufacturing yields and other factors. For example, net sales for the fourth quarter of fiscal 1998 were $28.1 million compared to $39.1 million for the fourth quarter of fiscal 1997 due, in part, to the factors described 12 above. A significant portion of the Company's operating and manufacturing expenses are relatively fixed in nature and planned expenditures are based in part on anticipated orders. If the Company is unable to adjust spending in a timely manner to compensate for any unexpected future sales shortfall, the Company's business, financial condition and results of operations could be materially and adversely affected. The Company's operations entail a high level of fixed costs and require an adequate volume of production and sales to achieve and maintain reasonable gross profit margins and positive net earnings. Accordingly, any significant decline in demand for the Company's products or reduction in the Company's average selling prices, or any material delay in customer orders would have a material adverse effect on the Company's business, financial condition and results of operations. For example, when net sales declined to $120.6 million for fiscal 1998 from $144.4 million for fiscal 1997, the Company's earnings before income taxes fell to a loss of $4.1 million (including $9.2 million in non-recurring charges incurred in the third quarter of fiscal 1998) for fiscal 1998 from earnings before income taxes of $17.3 million in fiscal 1997 due, in part, to the factors described above. In addition, the Company's future results depend in large part on growth in the markets for the Company's products. The growth in each of these markets may depend on, among other things, changes in general economic conditions, or conditions which relate specifically to the markets in which the Company competes, changes in regulatory conditions, legislation, export rules or conditions, interest rates and fluctuations in the business cycle for any particular market segment. Uncertainty of Timing of Product Sales; Limited Backlog. A substantial portion of the Company's quarterly net sales is often dependent upon orders received and shipped during that quarter, of which, a significant portion may be received during the last month or even the last few days of that quarter. The semiconductor industry has recently experienced a change towards significantly shorter lead times resulting in an increased dependence by Linfinity upon orders received and shipped during the same quarter. The timing of the receipt and shipment of even one large order may have a significant impact on the Company's net sales and results of operations for such quarter. Furthermore, most orders in backlog can be rescheduled or canceled without significant penalty. As a result, it is difficult to predict the Company's quarterly results even during the final days of a quarter. However, based on orders received through the first two months of fiscal 1999, the Company expects that net sales for the first quarter of fiscal 1999 will decline as compared to net sales for the first quarter of fiscal 1998. Customer Concentration. A relatively small number of customers has historically accounted for, and is expected to continue to account for, a significant portion of the Company's net sales in any given fiscal period. In fiscal 1997, AT&T Corporation (AT&T), a Telecom Solutions customer, accounted for 16% of the Company's total net sales. No customer accounted for 10% or more of net sales in fiscal years 1998 and 1996. The timing and level of sales to the Company's largest customers have fluctuated significantly in the past and are expected to continue to fluctuate significantly from quarter-to- quarter and year-to-year in the future. For example, the Company's sales to AT&T increased to $22.5 million in fiscal 1997 from $2.6 million in fiscal 1996 but decreased to $8.1 million in fiscal 1998. There can be no assurance as to the timing or level of future sales to the Company's customers. The loss of one or more of the Company's significant customers or a significant reduction or delay in sales to any such customer, could have a material adverse effect on the Company's business, financial condition and results of operations. New Product Development. The market for the Company's products is characterized by rapidly changing technologies, frequent new product introductions, evolving industry standards and changes in end-user requirements. Technological advancements could render the Company's products obsolete and unmarketable. The Company's success will depend on its ability to respond to changing technologies and customer requirements and on its ability to develop and introduce new and enhanced products, in a cost-effective and timely manner. Delays in new product development or delays in production startup could have a material adverse effect on the Company's business, financial condition and results of operations. Such delays have happened in the past, and there can be no assurance that such delays will not recur or that the Company will successfully respond to technological changes and develop and introduce new or enhanced products, or that such new or enhanced products will achieve market acceptance. 13 Product Performance and Reliability. The Company's customers establish demanding specifications for product performance and reliability. The Company's products are complex and often use state of the art components, processes and techniques. Undetected errors and design flaws have occurred in the past and there can be no assurance that new products or enhancements of existing products will not contain undetected errors, design flaws or other failures due to the complexities of such products. In addition to higher product service, warranty and replacement costs, such product defects may seriously harm the Company's customer relationships and industry reputation, further magnifying the adverse impact of such defects. Any such product performance or reliability problems could have a material adverse effect on the Company's business, financial condition and results of operations. Competition; Pricing Pressure. The Company believes that competition in the telecommunications and semiconductor industries in general, and in the new and existing markets served by the Company in particular, is intense and likely to increase substantially. The Company's ability to compete successfully in the future will depend on, among other things: the cost effectiveness, quality, price, service and market acceptance of the Company's products; its response to the entry of new competitors or the introduction of new products by the Company's competitors; its ability to keep pace with changing technology and customer requirements; the timely development or acquisition of new or enhanced products; and the timing of new product introductions by the Company or its competitors. In the telecommunications market, Telecom Solutions' primary competitors are Datum Inc. and Hewlett-Packard Company. In addition, due, in part, to the enactment of The Telecommunications Act of 1996, which permits Regional Bell Operating Companies (RBOCs), which are among Telecom Solutions' largest customers, to manufacture telecommunications equipment, RBOCs may increasingly become significant competitors of Telecom Solutions. In the semiconductor market, Linfinity competes with a number of large multinational companies and smaller niche companies. In addition, as part of its license and supply agreement with Linfinity, IMP, Inc. has the right to manufacture, market, and sell the SCSI line of products through its own sales force in direct competition with Linfinity. Many of the Company's competitors or potential competitors are more established than the Company and have greater financial, manufacturing, technical and marketing resources. Furthermore, the Company expects its competitors to continually improve their design and manufacturing capabilities and to introduce new products and services with enhanced performance characteristics and/or lower prices. The Company continues to experience significant pricing pressures in all of its markets and has experienced price erosion in several product lines, including LDOs and PWMs. In addition, the continuing trend toward lower-priced personal computers has intensified pricing pressures in certain related markets served by Linfinity. Linfinity's response has been to attempt to increase the volume of units shipped and to attempt to introduce new products with higher average selling prices, but there can be no assurance that the Company will be able to fully offset the impact of this severe price erosion. This competitive environment could result in significant price reductions or the loss of orders from current and/or potential customers which, in each case, could materially adversely affect the Company's business, financial condition and results of operations. Dependence on Foundries, Assembly and Test Services. Although Linfinity uses its own semiconductor fabrication facility to manufacture bipolar wafers, it utilizes IMP, Inc., an independent semiconductor foundry located in San Jose, California, to supply most of its BiCMOS wafers. While reliance on an outside foundry may reduce capital expenditures and fixed costs, it increases certain risks significantly, including limited control of: delivery schedules; manufacturing yields; production costs; and wafer supply, particularly during periods of rapidly fluctuating demand. In the event that Linfinity's outside foundry, as a result of financial or operating difficulties or otherwise, is unable or unwilling to continue supplying wafers to Linfinity in the quantities and with the yields required by Linfinity, there can be no assurance that Linfinity will be able to identify and qualify additional manufacturing sources in a timely manner, that any such additional manufacturing sources would be able to produce wafers with acceptable manufacturing yields or that Linfinity would not experience delays in product availability, quality problems, increased costs or disruption in product development activities. Irrespective of cause, delayed or reduced wafer supply or reduced manufacturing yields could result in delayed shipments or canceled orders which, in either case, could materially and adversely affect the Company's business, financial condition and results of operations. 14 Linfinity also increasingly relies on independent contract manufacturers in the Far East to assemble and test a significant percentage of its integrated circuits and most of its electronic modules. Reliance on independent contractors can lengthen manufacturing cycle times, especially if Linfinity is required, due to contractors' capacity constraints, to compete against others for these contractors' services. Any inability to obtain sufficient manufacturing capacity through existing or alternative sources at favorable prices, if and as required, could result in delays or reductions in product shipments which, in turn, could have a material adverse effect on the Company's business, financial condition and results of operations. Proprietary Technology. The Company's success will depend, in part, on its ability to protect trade secrets, obtain or license patents and operate without infringing on the rights of others. The Company relies on a combination of trademark, copyright and patent registration, contractual restrictions and internal security to establish and protect its proprietary rights. There can be no assurance that such measures will provide meaningful protection for the Company's trade secrets or other proprietary information. The Company has United States and international patents and patent applications pending covering certain technology used by its Telecom Solutions and Linfinity operations. However, while the Company believes that its patents have value, the Company relies primarily on innovation, technological expertise and marketing competence to maintain its competitive position. The telecommunications and semiconductor industries are both characterized by the existence of a large number of patents and frequent litigation based on allegations of patent infringement. While the Company intends to continue its efforts to obtain patents whenever possible, there can be no assurance that patents will be issued or that new or existing patents will not be challenged, invalidated or circumvented or that the rights granted will provide any commercial benefit to the Company. The Company is also subject to the risk of adverse claims and litigation alleging infringement of the intellectual property rights of others. Although the Company is not currently party to any intellectual property litigation, from time to time it has received claims asserting that the Company has infringed the proprietary rights of others. There can be no assurance that third parties will not assert infringement claims against the Company in the future or that any such claims will not result in costly litigation or require the Company to obtain a license for such intellectual property rights regardless of the merit of such claims. No assurance can be given that any necessary licenses will be available or that, if available, such licenses can be obtained on commercially reasonable terms. Environmental Matters. The Company's operations are subject to numerous federal, state and local environmental regulations related to the storage, use, discharge and disposal of toxic, volatile or otherwise hazardous chemicals used in its manufacturing process. While the Company has not experienced any materially adverse effects on its operations from environmental regulations, there can be no assurance that changes in such regulations will not impose the need for additional capital equipment or other requirements or restrict the Company's ability to expand its operations. Failure to comply with such regulations could result in suspension or cessation of the Company's operations, or could subject the Company to significant liabilities. Although the Company periodically reviews its facilities and internal operations for compliance with applicable environmental regulations, such reviews are necessarily limited in scope and frequency and, therefore, there can be no assurance that such reviews have revealed or will reveal all potential instances of noncompliance. The liabilities arising from any noncompliance with such environmental regulations could materially adversely affect the Company's business, financial condition and results of operations. Governmental Regulations. Federal and state regulatory agencies, including the Federal Communications Commission and the various state public utility commissions and public service commissions, regulate most of the Company's domestic telecommunications customers. Although the Company is generally not directly affected by such legislation, the effects of such regulation on the Company's customers may, in turn, adversely impact the Company's business, financial condition and results of operations. For instance, the sale of the Company's products may be affected by the imposition upon certain of the Company's customers of common carrier tariffs and the taxation of telecommunications services. These regulations are continuously reviewed and subject to change by the various governmental agencies. Changes in current or future laws or regulations, in the United States or elsewhere, could materially and adversely affect the Company's business, financial condition and results of operations. 15 Risks Associated with International Sales. The Company's export sales, which were primarily to the Far East, Western Europe, Canada and Latin America accounted for 27%, 26% and 28% of the Company's net sales in fiscal years 1998, 1997 and 1996, respectively. Export sales to the Far East accounted for 12%, 16% and 13% of the Company's net sales in fiscal years 1998, 1997 and 1996, respectively. International sales subject the Company to increased risks associated with political and economic instability and changes in diplomatic and trade relationships. For example, the Company believes that the recent economic instability being experienced by certain Asian countries may continue to adversely affect export sales to the Far East during the first quarter of fiscal 1999 and beyond. In addition to the loss of direct sales to the region, the economic instability in Asia could have a material adverse effect on the Company's business, financial condition and results of operations indirectly if, for example, the current situation in Asia adversely affects the Company's distributors, customers and suppliers in the Asia region or elsewhere in the world, causing more widespread reductions in sales, delays in collection and supply difficulties. International sales may be subject to certain additional risks, including but not limited to, foreign currency fluctuations, export restrictions, longer payment cycles and unexpected changes in regulatory requirements or tariffs. To date, sales and purchase obligations denominated in foreign currencies have not been significant. However, if, in the future, a higher portion of such sales and purchases are denominated in foreign currencies, gains and losses on the conversion to U.S. dollars of foreign currency accounts receivable and accounts payable arising from international operations may contribute to fluctuations in the Company's business and operating results. The Company does not currently engage in foreign currency hedging activities or derivative arrangements but may do so in the future to the extent that such obligations become more significant. Additionally, currency fluctuations could have an adverse effect on the demand for the Company's products in foreign markets. There can be no assurance that such factors will not materially and adversely affect the Company's business, financial condition or results of operations in the future or require the Company to modify significantly its current business practices. In addition, the laws of certain foreign countries may not protect the Company's proprietary technology to the same extent as do the laws of the United States. Inventory Risks. In the third quarter of fiscal 1998, the Company recorded an $8.5 million inventory provision in view of lower sales prices and sales volumes experienced by Linfinity. Although the Company believes that it currently has appropriate provisions for inventory that has declined in value, become obsolete or is in excess of anticipated demand, there can be no assurance that such provisions will be adequate. The Company's business, financial condition and operating results may be materially adversely affected if significant inventories become obsolete or are otherwise not able to be sold at favorable prices. Uncertainties Regarding Sales to Distributors. The percentage of the Company's sales sold through distributors, particularly at Linfinity, has generally increased over the past several years, although such percentage fluctuates from quarter to quarter. Sales to distributors, either contractually or by industry custom, may be subject to certain rights of return and other allowances for which the Company maintains reserves. However, there can be no assurance that such reserves will be adequate. The Company's business, financial condition and operating results may be materially adversely affected if actual allowances significantly exceed amounts reserved therefor. Changes to Effective Tax Rate. The Company's effective tax rate is affected by the proportion of earnings (loss) before income taxes that the Company derives from its Telecom Solutions operation compared to its Linfinity operation. The effective tax rate in fiscal 1998 was magnified by the significant loss at Linfinity which was subject to higher tax rates from its United States jurisdictions offset by the earnings at Telecom Solutions. Most of Telecom Solutions' Puerto Rico earnings are taxed under Section 936 of the U.S. Internal Revenue Code which exempts qualified Puerto Rico earnings from federal income taxes. This results in an overall lower effective tax rate for Telecom Solutions. This exemption is subject to certain wage-based limitations and expires at the end of fiscal 2006. In addition, this exemption will be subject to further limitations during fiscal years 2003 through 2006. Fluctuations in Stock Price. The Company's stock price has been and may continue to be subject to significant volatility. Many factors, including any shortfall in sales or earnings from levels expected by securities analysts and investors could have an immediate and significant adverse effect on the trading price of the Company's common stock. 16 Year 2000 Compliance Risks. The Company is aware that many existing information technology (IT) systems, such as computer systems and software products, as well as non-IT systems that include embedded technology, were not designed to correctly process dates after December 31, 1999. The Company is currently assessing the impact of such "Year 2000" issues on its internal IT and non-IT systems as well as on its customers, suppliers and service providers. The Company has formed a Year 2000 Project Team to identify and address Year 2000 compliance issues, including those related to the Company's significant non-IT systems used in the Company's buildings, plant, equipment and other infrastructure. The Year 2000 Project Team is continuing its testing and evaluation of the Company's products and the Company's IT systems and has recently begun the process of compiling an inventory of all material Year 2000 issues related to the Company's non-IT systems. The Company has not identified any significant areas of non-compliance with respect to its products or IT systems and expects that the assessment and plans for remedial action for all of its products, IT systems and non-IT systems will be completed by the end of fiscal 1999. The Company has also initiated discussions with its significant suppliers and service providers regarding their plans to investigate and remediate their Year 2000 issues. Although the Company anticipates cooperation in these efforts from most of the Company's significant suppliers and service providers, the Company is also dependent on certain utility companies, telecommunication service companies and other service providers that are outside the Company's control. Therefore, it may be difficult for the Company to obtain assurances of Year 2000 readiness from such third parties. Although the Company believes that its Year 2000 Project Team will identify all of the Company's material Year 2000 issues in the course of its assessments, given the pervasiveness of Year 2000 issues and the complex interrelationships among Year 2000 issues both internal and external to the Company, there can be no assurance that the Company will be able to identify and accurately evaluate all such issues. The Company estimates that the expenses it has incurred to date to address Year 2000 issues have not been material and, although it has not completed its full assessment of its Year 2000 readiness, it does not expect to incur material expenses in connection with any required remediation efforts. As the process of compiling an inventory of non-IT systems proceeds and as the other efforts of the Year 2000 Project Team continue, the Company may identify situations that present material Year 2000 risks and/or that will require substantial time and material expense to address. In addition, if any customers, suppliers or service providers fail to appropriately address their Year 2000 issues, such failure could have a material adverse effect on the Company's business, financial condition and results of operations. For example, because a significant percentage of the purchase orders received from the Company's customers are computer generated and electronically transmitted, a failure of one or more of the computer systems of the Company's customers could have a significant adverse effect on the level and timing of orders from such customers. Similarly, if Year 2000 problems experienced by any of the Company's significant suppliers or service providers cause or contribute to delays or interruptions in the delivery of products or services to the Company, such delays or interruptions could have a material adverse effect on the Company's business, financial condition and results of operations. Finally, disruption in the economy generally resulting from Year 2000 issues could also materially adversely affect the Company. Although the Year 2000 Project Team has not yet determined the most likely worst-case Year 2000 scenarios or quantified the likely impact of such scenarios, it is clear that the occurrence of one or more of the risks described above could have a material adverse effect on the Company's business, financial condition or results of operations. The Company's Year 2000 Project Team's activities will include the development of contingency plans in the event the Company has not completed all of its remediation programs in a timely manner. In addition, the Year 2000 Project Team will develop contingency plans in the event that any third parties who provide goods or services essential to the Company's business fail to appropriately address their Year 2000 issues. The Year 2000 Project Team expects to conclude the development of these contingency plans by the end of fiscal 1999. Even if these plans are completed on time and put in place, there can be no assurance that such plans will be sufficient to address any third party failures or that unresolved or undetected internal and external Year 2000 issues will not have a material adverse effect on the Company's business, financial condition and results of operations. RESULTS OF OPERATIONS The Company operates in two different industry segments. Telecom Solutions, a division of the Company, designs, manufactures and markets advanced network synchronization systems and intelligent access systems for 17 the telecommunications industry. Linfinity Microelectronics Inc., a subsidiary of the Company, designs, manufactures and markets linear and mixed signal integrated circuits as well as systems-engineered modules primarily for use in power management and communication applications in commercial, industrial, and defense and space markets. Net Sales Net sales decreased by $23.8 million (16%) to $120.6 million in fiscal 1998 as compared to fiscal 1997 and increased by $38.3 million (36%) to $144.4 million in fiscal 1997 as compared to fiscal 1996. The decrease in fiscal 1998 sales was due to lower sales in both operations. The increase in fiscal 1997 sales was due to higher sales in both operations. Telecom Solutions' net sales decreased by $16.4 million (18%) to $73.3 million in fiscal 1998 as compared to fiscal 1997 and increased by $21.5 million (31%) to $89.7 million in fiscal 1997 as compared to fiscal 1996. The decrease in fiscal 1998 was principally due to lower sales to AT&T Corporation (AT&T), which decreased to $8.1 million in fiscal 1998 from $22.5 million in fiscal 1997, and the completion of the Secure7 contract with SBC Communications Inc., where Secure7 sales decreased to $0.9 million in fiscal 1998 from $8.1 million in fiscal 1997, partially offset by higher sales to international accounts, particularly Italy, Germany and South Africa. The Company expects sales to AT&T to fall further in fiscal 1999. The increase in fiscal 1997 was principally due to higher sales to AT&T which increased to $22.5 million in fiscal 1997 from $2.6 million in fiscal 1996. Linfinity's net sales decreased by $7.4 million (13%) to $47.3 million in fiscal 1998 as compared to fiscal 1997 and increased by $16.8 million (45%) to $54.6 million in fiscal 1997 as compared to fiscal 1996. The decrease in fiscal 1998 was due to increased price pressure and weak demand from component manufacturers supplying the personal computer markets as well as an overall decline in the global semiconductor market. The increase in fiscal 1997 was primarily due to higher unit volumes of new standard commercial products and a shift in sales to higher priced products. Gross Profit Margin The Company's gross profit margin was 37%, 46% and 44% in fiscal 1998, 1997 and 1996, respectively. Telecom Solutions' gross profit margin was 50%, 49%, 46% in fiscal 1998, 1997 and 1996, respectively. In fiscal 1998, the higher gross margin reflects a slightly more favorable product mix as compared to fiscal 1997. In fiscal 1997, the higher gross margin was principally attributable to higher unit volumes and increased manufacturing efficiencies. Linfinity's gross profit margins were 17%, 40% and 40% in fiscal 1998, 1997 and 1996, respectively. The fiscal 1998 results include a one-time charge for inventory provision of $8.5 million and a reduction in force charge of $0.3 million. Excluding the one-time charges of $8.8 million, the gross margin for fiscal 1998 was 36%. Excluding the one-time charges, the decrease in gross profit margin in fiscal 1998 was primarily attributed to lower production volumes and sales prices. In fiscal 1997, gross profit margin was unchanged from fiscal 1996, reflecting efficiencies from higher unit sales volumes fully offset by falling prices in some areas. Operating Expenses Research and development expense was $18.8 million (or 16% of net sales), $18.5 million (or 13% of net sales) and $15.4 million (or 15% of net sales) in fiscal 1998, 1997 and 1996, respectively. Telecom Solutions' research and development expense was $12.4 million (or 17% of net sales), $12.9 million (or 14% of net sales) and $9.6 million (or 14% of net sales) in fiscal 1998, 1997 and 1996, respectively. The fiscal 1998 results reflect continued high investments in new products and core technology, 18 with a slight reduction due to lower earnings-based incentive compensation. During fiscal 1998, Telecom Solutions' new product development program was focused on wireline and wireless synchronization, network management software and core GPS, antenna and clock technologies. The increase in fiscal 1997 was primarily due to higher expenditures for the development of new wireless synchronization products and technologies and for the initial development efforts related to network management software. Linfinity's research and development expense was $6.4 million (or 14% of net sales), $5.6 million (or 10% of net sales) and $5.8 million (or 15% of net sales) in fiscal 1998, 1997 and 1996, respectively. In fiscal 1998, $0.5 million of the increase was due to purchased development from IMP, Inc. Linfinity's new product development program was focused on developing its new line of ASSPs and desktop power management products during fiscal 1998, 1997 and 1996. Selling, general and administrative expense was $30.6 million (or 25% of net sales), $31.5 million (or 22% of net sales) and $22.5 million (or 21% of net sales) in fiscal 1998, 1997 and 1996, respectively. Telecom Solutions' selling, general and administrative expense was $19.1 million (or 26% of net sales), $21.1 million (or 24% of net sales) and $15.8 million (or 23% of net sales) in fiscal 1998, 1997 and 1996, respectively. The decrease in fiscal 1998 reflects lower selling expenses associated with lower sales and lower earnings-based incentive compensation. The increase in fiscal 1997 was primarily due to higher marketing and sales expenses associated with increased sales, expanded sales support and product promotion and higher earnings-based incentive compensation. Linfinity's selling, general and administrative expense was $11.5 million (or 24% of net sales), $10.4 million (or 19% of net sales) and $6.7 million (or 18% of net sales) in fiscal 1998, 1997 and 1996, respectively. The increase in fiscal 1998 was substantially due to an increase in bad debt provision and a $0.4 million charge related to a reduction in force. The increase in 1997 was substantially due to higher marketing and sales expenses associated with increased sales, expanded sales support, new product promotion and higher earnings-based incentive compensation. Operating Income (Loss) Operating loss was $5.1 million in fiscal 1998, a $21.1 million decrease in operating income from fiscal 1997. Fiscal 1997 operating income increased by 94% to $16.0 million from $8.3 million in fiscal 1996. Telecom Solutions' operating income decreased by 52% to $4.8 million in fiscal 1998 and increased 71% to $10.0 million in fiscal 1997 from $5.9 million in fiscal 1996. The decrease in fiscal 1998 is primarily attributable to the unfavorable impact of lower net sales partially offset by reductions in operating expenses. The increase in fiscal 1997 reflects the favorable impact of higher net sales partially offset by increased operating expenses. Linfinity's operating loss was $9.9 million in fiscal 1998, a $15.9 million decrease in operating income from fiscal 1997. Fiscal 1997 operating income increased by 150% to $6.0 million from $2.4 million in fiscal 1996. The fiscal 1998 results reflect the unfavorable effect of lower net sales, the one-time charge to inventory provision, the one-time charges for the reduction in force and increased operating expenses. The increase in fiscal 1997 reflects the favorable impact of higher net sales partially offset by higher operating expenses. Interest Income (Expense) Interest income was $1.8 million, $1.9 million and $1.8 million in fiscal 1998, 1997 and 1996, respectively. The decrease in fiscal 1998 reflects lower average invested cash balances offset by slightly higher interest rates. Interest expense was $0.8 million, $0.6 million and $0.6 million in fiscal 1998, 1997 and 1996, respectively. Fiscal 1998 was predominantly due to interest expense at Telecom Solutions, associated with the capital lease on 19 its building in San Jose. Interest expense in fiscal 1997 and fiscal 1996 was associated with a note payable at Linfinity that was repaid in full in September 1997. Income Taxes The income tax benefit was $2.6 million (effective tax rate of 63%) in fiscal 1998. The income tax provision was $3.9 million (effective tax rate of 22%) and $2.0 million (effective tax rate of 21%) in fiscal 1997 and 1996, respectively. The fiscal 1998 income tax benefit and effective tax rate were primarily affected by the proportion of earnings (loss) before income taxes between Telecom Solutions and Linfinity. The effective tax rate in fiscal 1998 was magnified by the significant loss at Linfinity netted against the earnings at Telecom Solutions. Linfinity was subject to higher tax rates from its United States jurisdictions, while most of the Telecom Solutions Puerto Rico earnings are taxed under Section 936 of the U.S. Internal Revenue code which exempts qualified Puerto Rico earnings from federal income taxes. The fiscal 1997 and 1996 effective tax rates were lower than the federal tax rate principally due to the benefit of lower income tax rates resulting from the federal exemption of qualified Puerto Rico earnings. However, this Section 936 exemption expires at the end of fiscal 2006 and is subject to certain wage based limitations. Additionally, this benefit will be further limited during fiscal 2003 to 2006, based on certain prior year Puerto Rico earnings. Net Income (Loss) As a result of the factors discussed above, net loss was $1.5 million, or $0.10 per share (diluted), in fiscal 1998 compared to net earnings of $13.5 million, or $0.83 per share (diluted), in fiscal 1997 and net earnings of $7.5 million, or $0.47 per share (diluted), in fiscal 1996. New Accounting Pronouncements Effective December 31, 1997, the Company adopted Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings per Share," which requires the presentation of basic and diluted earnings per share information. Basic earnings per share, which replaces primary earnings per share, is computed by dividing net earnings by the weighted average number of common shares outstanding during the period. Diluted earnings per share, which replaces fully diluted earnings per share, is computed by dividing net earnings by the weighted average number of common shares outstanding and common equivalent shares from dilutive stock options, using the treasury stock method. All prior period earnings per share data presented have been restated to conform with the provisions of this Statement. In June 1997, Statement of Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive Income" and Statement of Financial Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments of an Enterprise and Related Information," were issued which require the Company to report and display certain information related to comprehensive income and operating segments, respectively. Both statements are effective for fiscal years beginning after December 15, 1997. Accordingly, the Company will adopt SFAS 130 and SFAS 131 starting with its fiscal year ending June 30, 1999. Adoption of these statements will not impact the Company's financial position and results of operations. In June 1998, Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities," was issued which defines derivatives, requires all derivatives be carried at fair value, and provides for hedging accounting when certain conditions are met. This statement is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. Although the Company has not fully assessed the implications of this new statement, the Company does not believe adoption of this statement will have a material impact on the Company's financial statements. 20 Liquidity and Capital Resources Working capital decreased to $55.6 million at June 30, 1998 from $58.3 million at June 30, 1997, while the current ratio increased to 3.8 to 1.0 from 2.9 to 1.0. The increase in the current ratio resulted primarily from the repayment of a $5.7 million note. During the same period, cash, cash equivalents and short-term investments decreased to $34.3 million from $41.6 million, principally due to $6.5 million used for capital expenditures, the repayment of the $5.7 million note, and $1.8 million used for the net repurchase of the Company's common stock which more than offset $7.5 million in cash provided by operating activities. At June 30, 1998, the Company had a capital lease obligation entered during fiscal 1997 for a facility as described in Note D of the Notes to Consolidated Financial Statements See Part IV, Item 14. "Exhibits, Financial Statement Schedule and Reports on Form 8-K." At June 30, 1998, the Company had $7.0 million of unused credit available under its bank line of credit. The Company believes that cash, cash equivalents, short-term investments, funds generated from operations and funds available under its bank line of credit will be sufficient to satisfy working capital requirements, short-term loan repayment and capital expenditures in fiscal 1999. At June 30, 1998, the Company had no material outstanding commitments to purchase capital equipment. Year 2000 Issue The Company is aware that many existing information technology (IT) systems, such as computer systems and software products, as well as non-IT systems that include embedded technology, were not designed to correctly process dates after December 31, 1999. The Company is currently assessing the impact of such "Year 2000" issues on its internal IT and non-IT systems as well as on its customers, suppliers and service providers. The Company has formed a Year 2000 Project Team to identify and address Year 2000 compliance issues, including those related to the Company's significant non-IT systems used in the Company's buildings, plant, equipment and other infrastructure. The Year 2000 Project Team is continuing its testing and evaluation of the Company's products and the Company's IT systems and has recently begun the process of compiling an inventory of all material Year 2000 issues related to the Company's non-IT systems. The Company has not identified any significant areas of non-compliance with respect to its products or IT systems and expects that the assessment and plans for remedial action for all of its products, IT systems and non-IT systems will be completed by the end of fiscal 1999. The Company has also initiated discussions with its significant suppliers and service providers regarding their plans to investigate and remediate their Year 2000 issues. Although the Company anticipates cooperation in these efforts from most of the Company's significant suppliers and service providers, the Company is also dependent on certain utility companies, telecommunication service companies and other service providers that are outside the Company's control. Therefore, it may be difficult for the Company to obtain assurances of Year 2000 readiness from such third parties. Although the Company believes that its Year 2000 Project Team will identify all of the Company's material Year 2000 issues in the course of its assessments, given the pervasiveness of Year 2000 issues and the complex interrelationships among Year 2000 issues both internal and external to the Company, there can be no assurance that the Company will be able to identify and accurately evaluate all such issues. The Company estimates that the expenses it has incurred to date to address Year 2000 issues have not been material and, although it has not completed its full assessment of its Year 2000 readiness, it does not expect to incur material expenses in connection with any required remediation efforts. As the process of compiling an inventory of non-IT systems proceeds and as the other efforts of the Year 2000 Project Team continue, the Company may identify situations that present material Year 2000 risks and/or that will require substantial time and material expense to address. In addition, if any customers, suppliers or service providers fail to appropriately address their Year 2000 issues, such failure could have a material adverse effect on the Company's business, financial condition and results of operations. For example, because a significant percentage of the purchase orders received from the Company's customers are computer generated 21 and electronically transmitted, a failure of one or more of the computer systems of the Company's customers could have a significant adverse effect on the level and timing of orders from such customers. Similarly, if Year 2000 problems experienced by any of the Company's significant suppliers or service providers cause or contribute to delays or interruptions in the delivery of products or services to the Company, such delays or interruptions could have a material adverse effect on the Company's business, financial condition and results of operations. Finally, disruption in the economy generally resulting from Year 2000 issues could also materially adversely affect the Company. Although the Year 2000 Project Team has not yet determined the most likely worst-case Year 2000 scenarios or quantified the likely impact of such scenarios, it is clear that the occurrence of one or more of the risks described above could have a material adverse effect on the Company's business, financial condition or results of operations. The Company's Year 2000 Project Team's activities will include the development of contingency plans in the event the Company has not completed all of its remediation programs in a timely manner. In addition, the Year 2000 Project Team will develop contingency plans in the event that any third parties who provide goods or services essential to the Company's business fail to appropriately address their Year 2000 issues. The Year 2000 Project Team expects to conclude the development of these contingency plans by the end of fiscal 1999. Even if these plans are completed on time and put in place, there can be no assurance that such plans will be sufficient to address any third party failures or that unresolved or undetected internal and external Year 2000 issues will not have a material adverse effect on the Company's business, financial condition and results of operations. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risk related to fluctuations in interest rates and in foreign currency exchange rates: Interest Rate Exposure. The Company's exposure to market risk due to fluctuations in interest rates relates primarily to its short-term investment portfolio, which consists of corporate debt securities which are classified as available-for-sale and were reported at an aggregate fair value of $3.0 million as of June 30, 1998. These available-for-sale securities are subject to interest rate risk inasmuch as their fair value will fall if market interest rates increase. If market interest rates were to increase immediately and uniformly by 10% from the levels prevailing at June 30, 1998, the fair value of the portfolio would not decline by a material amount. The Company does not use derivative financial instruments to mitigate the risks inherent in these securities. However, the Company does attempt to reduce such risks by typically limiting the maturity date of such securities to no more than nine months, placing its investments with high credit quality issuers and limiting the amount of credit exposure with any one issuer. In addition, the Company believes that it currently has the ability to hold these investments until maturity, and, therefore, believes that reductions in the value of such securities attributable to short-term fluctuations in interest rates would not materially affect the financial position, results of operations or cash flows of the Company. Foreign Currency Exchange Rate Exposure. The Company's exposure to market risk due to fluctuations in foreign currency exchange rates relates primarily to the intercompany balance with its U.K. subsidiary. Although the Company transacts business in various foreign countries, settlement amounts are usually based on U.S. currency. Transaction gains or losses have not been significant in the past and there is no hedging activity on sterling or other currencies. Based on the intercompany balance of $1.5 million at June 30, 1998, a hypothetical 10% adverse change in sterling against U.S. dollars would not result in a material foreign exchange loss. Consequently, the Company does not expect that reductions in the value of such intercompany balances or of other accounts denominated in foreign currencies resulting from even a sudden or significant fluctuation in foreign exchange rates would have a direct material impact on the Company's financial position, results of operations or cash flows. Notwithstanding the foregoing analysis of the direct effects of interest rate and foreign currency exchange rate fluctuations on the value of certain of the Company's investments and accounts, the indirect effects of such fluctuations could have a material adverse effect on the Company's business, financial condition and results of 22 operations. For example, international demand for the Company's products is affected by foreign currency exchange rates. In addition, interest rate fluctuations may affect the buying patterns of the Company's customers. Furthermore, interest rate and currency exchange rate fluctuations have broad influence on the general condition of the U.S., foreign and global economies which could materially adversely affect the Company. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's financial statements follow Part IV, Item 14. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 23 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding directors appearing under the caption "Proposal No. One--Election of Directors--Nominees" of the Company's Proxy Statement for the 1998 Annual Meeting of Shareholders filed with the Commission on September 23, 1998, (the "Proxy Statement") is incorporated herein by reference. Information regarding executive officers is included in Part I hereof under the heading "Executive Officers of the Company" immediately following Item 4 in Part I hereof. Information regarding compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, is incorporated herein by reference from the section entitled "Other Information--Section 16(a) Beneficial Ownership Reporting Compliance" of the Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION Incorporated herein by reference to the Proxy Statement under the captions "Proposal No. One--Election of Directors--Nominees," "Executive Officer Compensation," "Proposal No. One--Election of Directors--Director Compensation," and "Certain Transactions." ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated herein by reference to the Proxy Statement under the caption "Other Information--Share Ownership by Principal Shareholders and Management." ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated herein by reference to the Proxy Statement under the caption "Certain Transactions." 24 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K (a) Financial Statements and Financial Statement Schedule 1. Financial Statements. The following financial statements of the Company and the report of Deloitte & Touche LLP, Independent Auditors, are included in this report on Form 10-K on the pages indicated.
PAGE ---- Consolidated Balance Sheets at June 30, 1998 and 1997.................. 26 Consolidated Statements of Operations for the years ended June 30, 1998, 1997 and 1996................................................... 27 Consolidated Statements of Shareholders' Equity for the years ended June 30, 1998, 1997 and 1996.......................................... 28 Consolidated Statements of Cash Flows for the years ended June 30, 1998, 1997 and 1996................................................... 29 Notes to Consolidated Financial Statements............................. 30 Independent Auditors' Report........................................... 42
2. Financial Statement Schedule. The following financial statement schedule of the Company for the years ended June 30, 1998, 1997, and 1996 is filed as part of this report on Form 10-K and should be read in conjunction with the financial statements. Schedule II--Valuation and Qualifying Accounts and Reserves All other schedules have been omitted because they are not applicable, not required, or the required information is included in the Consolidated Financial Statements or notes thereto. 3. Exhibits: See Item 14(c) below. (b) Reports on Form 8-K No reports on Form 8-K were filed during the last quarter of the fiscal year ended June 30, 1998. (c) Exhibits The exhibits listed on the accompanying index immediately following the signature page are filed as a part of this report. (d) Financial Statement Schedules See Item 14(a) above. 25 SYMMETRICOM, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
JUNE 30, ----------------- 1998 1997 -------- -------- ASSETS Current assets: Cash and cash equivalents $ 31,369 $ 28,203 Short-term investments 2,973 13,384 -------- -------- Cash and investments 34,342 41,587 Accounts receivable, net of allowance for doubtful accounts of $479 and $457 16,347 21,349 Inventories, net 16,798 22,023 Other current assets 8,257 3,830 -------- -------- Total current assets 75,744 88,789 Property, plant and equipment, net 38,334 39,617 Other assets, net 815 899 -------- -------- $114,893 $129,305 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 5,585 $ 8,189 Accrued liabilities 14,388 16,546 Current maturities of long-term obligations 215 5,729 -------- -------- Total current liabilities 20,188 30,464 Long-term obligations 8,368 8,583 Deferred income taxes 1,980 2,655 Commitments and contingencies (Notes D & F) Shareholders' equity: Preferred stock, no par value; 500 shares authorized, none issued -- -- Common stock, no par value; 32,000 shares authorized, 15,772 and 15,879 shares issued and outstanding 23,892 25,608 Retained earnings 60,465 61,995 -------- -------- Total shareholders' equity 84,357 87,603 -------- -------- $114,893 $129,305 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 26 SYMMETRICOM, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED JUNE 30, ---------------------------- 1998 1997 1996 -------- -------- -------- Net sales $120,581 $144,355 $106,038 Cost of sales 76,306 78,411 59,824 -------- -------- -------- Gross profit 44,275 65,944 46,214 Operating expenses: Research and development 18,810 18,457 15,413 Selling, general and administrative 30,586 31,489 22,538 -------- -------- -------- Operating income (loss) (5,121) 15,998 8,263 Interest income 1,819 1,928 1,807 Interest expense (838) (589) (594) -------- -------- -------- Earnings (loss) before income taxes (4,140) 17,337 9,476 Income tax provision (benefit) (2,610) 3,883 1,998 -------- -------- -------- Net earnings (loss) $ (1,530) $ 13,454 $ 7,478 ======== ======== ======== Basic earnings (loss) per share $ (.10) $ .85 $ .48 ======== ======== ======== Weighted average shares outstanding--basic 15,845 15,755 15,449 ======== ======== ======== Diluted earnings (loss) per share $ (.10) $ .83 $ .47 ======== ======== ======== Weighted average shares outstanding--diluted 15,845 16,275 16,034 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 27 SYMMETRICOM, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS)
TOTAL COMMON STOCK SHARE- --------------- RETAINED HOLDERS' SHARES AMOUNT EARNINGS EQUITY ------ ------- -------- -------- Balance at June 30, 1995 15,097 $19,062 $41,063 $60,125 Issuance of common stock: Stock option exercises, net of shares tendered upon exercise 407 1,079 -- 1,079 Employee stock purchase plan 66 710 -- 710 Tax benefit from stock option plans -- 1,011 -- 1,011 Net earnings -- -- 7,478 7,478 ------ ------- ------- ------- Balance at June 30, 1996 15,570 21,862 48,541 70,403 Issuance of common stock: Stock option exercises, net of shares tendered upon exercise 325 1,730 -- 1,730 Employee stock purchase plan 74 817 -- 817 Tax benefit from stock option plans -- 2,394 -- 2,394 Repurchase of common stock (90) (1,195) -- (1,195) Net earnings -- -- 13,454 13,454 ------ ------- ------- ------- Balance at June 30, 1997 15,879 25,608 61,995 87,603 Issuance of common stock: Stock option exercises 75 590 -- 590 Employee stock purchase plan 86 942 -- 942 Tax benefit from stock option plans -- 109 -- 109 Repurchase of common stock (268) (3,357) -- (3,357) Net earnings (loss) -- -- (1,530) (1,530) ------ ------- ------- ------- Balance at June 30, 1998 15,772 $23,892 $60,465 $84,357 ====== ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements. 28 SYMMETRICOM, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED JUNE 30, ---------------------------- 1998 1997 1996 -------- -------- -------- Cash flows from operating activities: Cash received from customers $125,428 $137,463 $103,056 Cash paid to suppliers and employees (114,873) (115,244) (94,035) Interest received 1,216 1,332 1,148 Interest paid (838) (589) (594) Income taxes paid (3,475) (1,702) (559) -------- -------- -------- Net cash provided by operating activities 7,458 21,260 9,016 -------- -------- -------- Cash flows from investing activities: Purchases of short-term investments (19,289) (33,941) (24,644) Maturities of short-term investments 29,700 23,500 35,552 Purchases of plant and equipment, net (6,490) (15,136) (9,092) Increase in notes receivable, net (800) -- -- Other 141 45 (596) -------- -------- -------- Net cash provided by (used for) investing activities 3,262 (25,532) 1,220 -------- -------- -------- Cash flows from financing activities: Repayment of long-term obligations (5,729) (204) (52) Proceeds from issuance of common stock 1,532 2,547 1,789 Repurchase of common stock (3,357) (1,195) -- -------- -------- -------- Net cash provided by (used for) financing activities (7,554) 1,148 1,737 -------- -------- -------- Net increase (decrease) in cash and cash equivalents 3,166 (3,124) 11,973 Cash and cash equivalents at beginning of year 28,203 31,327 19,354 -------- -------- -------- Cash and cash equivalents at end of year $ 31,369 $ 28,203 $ 31,327 ======== ======== ======== Reconciliation of net earnings (loss) to net cash provided by operating activities: Net earnings (loss) $ (1,530) $ 13,454 $ 7,478 Depreciation and amortization 8,386 6,548 5,171 Net deferred income taxes (4,767) (512) (98) Changes in assets and liabilities: Accounts receivable 5,002 (6,805) (2,699) Inventories 5,225 (4,176) 8 Accounts payable (2,604) 2,645 1,236 Accrued liabilities (2,158) 7,361 (2,336) Tax benefit from employee stock plans 109 2,394 1,011 Other (205) 351 (755) -------- -------- -------- Net cash provided by operating activities $ 7,458 $ 21,260 $ 9,016 ======== ======== ======== Noncash investing and financing activity: Facility acquired under capital lease $ 8,750 ========
The accompanying notes are an integral part of these consolidated financial statements. 29 SYMMETRICOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business. Symmetricom, Inc. (the Company) operates in two different industry segments. Telecom Solutions, a division of the Company, designs, manufactures and markets advanced network synchronization systems and intelligent access systems for the telecommunications industry. Linfinity Microelectronics Inc., a subsidiary of the Company, designs, manufactures and markets linear and mixed signal integrated circuits as well as systems-engineered modules primarily for use in power management and communication applications in commercial, industrial, and defense and space markets. Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions are eliminated. Fiscal Period. The Company, for presentation purposes, presents each fiscal year as if it ended on June 30. However, the Company's fiscal year ends on the Sunday closest to June 30. All references to years refer to the Company's fiscal years. Fiscal years 1998, 1997 and 1996 consisted of 52 weeks. Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Cash Equivalents. The Company considers all highly liquid debt investments purchased with an original maturity of three months or less to be cash equivalents. Short-term Investments. Short-term investments, consisting of corporate debt securities which mature through October 1998, are classified as available-for- sale and reported at fair value. Net unrealized gains and losses, if significant, are excluded from earnings and included as a separate component of shareholders' equity. The cost of securities sold is based on the specific identification method. Fair Values of Financial Instruments. The estimated fair value of the Company's financial instruments, which include cash equivalents, short-term investments, accounts receivable and long-term obligations, approximate their carrying value. Concentrations of Credit Risk. Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash equivalents, short-term investments and accounts receivable. The Company places its investments with high-credit-quality corporations and financial institutions. Accounts receivable are derived primarily from sales to telecommunications service providers, original equipment manufacturers and distributors. Management believes that its credit evaluation, approval and monitoring processes substantially mitigate potential credit risks. Inventories. Inventories are stated at the lower of cost (first-in, first- out) or market. Property, Plant and Equipment. Property, plant and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method based on the estimated useful lives of the assets (three to thirty years) or the lease term if shorter. Long-lived assets. Effective July 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which requires recognition of impairment loss of long-lived assets and certain identifiable intangibles assets in the event the net book value of such assets exceeds the estimated future cash flows. The adoption of SFAS 121 had no material impact on the Company's financial position or results of operations. 30 Foreign Currency Translation. Foreign currency translation gains and losses and the effect of foreign currency exchange rate fluctuations have not been significant. Revenue Recognition. Sales are generally recognized upon shipment. Provisions are made for warranty costs, sales returns and price protection. Stock Options. In October 1995, Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation," was issued which establishes a fair value based method of accounting for compensation costs related to stock option plans and other forms of stock based compensation plans as an alternative to the intrinsic value based method of accounting defined under Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees." Effective July 1, 1996, the Company adopted SFAS 123 by electing to continue to apply the accounting provisions of APB 25 and providing the pro forma disclosure requirements of SFAS 123. Net Earnings (loss) Per Share. Basic earnings (loss) per share is computed by dividing net earnings (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is calculated by dividing net earnings (loss) by the weighted average number of common shares outstanding and common equivalent shares from dilutive stock options using the treasury method except when antidilutive. The following table reconciles the number of shares utilized in the earnings (loss) per share calculations.
YEAR ENDED JUNE 30, ------------------------ 1998 1997 1996 ------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net earnings (loss) $(1,530) $13,454 $ 7,478 Weighted average shares outstanding--basic 15,845 15,755 15,449 Dilutive stock options -- 520 585 ------- ------- ------- Weighted average shares outstanding--diluted 15,845 16,275 16,034 Basic earnings (loss) per share $ (.10) $ .85 $ .48 Diluted earnings (loss) per share $ (.10) $ .83 $ .47
Reclassifications. Certain reclassifications have been made to the prior year consolidated financial statements to conform to the 1998 presentation. Such reclassifications had no effect on previously reported results of operations or retained earnings. Recent Accounting Pronouncements. Effective December 31, 1997, the Company adopted Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings per Share," which requires the presentation of basic and diluted earnings per share information. Basic earnings per share, which replaces primary earnings per share, is computed by dividing net earnings by the weighted average number of common shares outstanding during the period. Diluted earnings per share, which replaces fully diluted earnings per share, is computed by dividing net earnings by the weighted average number of common shares outstanding and common equivalent shares from dilutive stock options, using the treasury stock method. All prior period earnings per share data presented have been restated to conform with the provisions of this Statement. In June 1997, Statement of Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive Income" and Statement of Financial Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments of an Enterprise and Related Information," were issued which require the Company to report and display certain information related to comprehensive income and operating segments, respectively. Both statements are effective for fiscal years beginning after December 15, 1997. Accordingly, the Company will adopt SFAS 130 and SFAS 131 starting with its fiscal year ending June 30, 1999. It is not expected that the adoption of these statements will have any material impact on the Company's financial position and results of operations. 31 In June 1998, Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities," was issued which defines derivatives, requires all derivatives be carried at fair value, and provides for hedging accounting when certain conditions are met. This statement is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. Although the Company has not fully assessed the implications of this new statement, the Company does not believe adoption of this statement will have a material impact on the Company's financial statements. NOTE B--LINFINITY MICROELECTRONICS INC. In July 1993, substantially all of the assets and liabilities of the Company's Semiconductor Group were transferred to Linfinity, a newly-formed subsidiary, in exchange for 6,000,000 shares of Linfinity Series A preferred stock and 2,000,000 shares of Linfinity common stock. Each Series A preferred share is convertible into one share of common stock. During September 1997, the Company increased its investment in Linfinity by $6.3 million in exchange for another 2,000,000 shares of Linfinity common stock. The proceeds were used by Linfinity for repayment of a note payable which was collateralized by land, building and related personal property. In addition, 2,500,000 shares of Linfinity's common stock have been reserved for issuance under Linfinity's employee stock option plan. All options have been granted at the fair market value on the date of grant as determined by Linfinity's Board of Directors based upon independent appraisal. Outstanding stock options generally vest 25% per year from date of grant and expire no later than ten years from date of grant. See Note I for information concerning Linfinity's outstanding stock options. NOTE C--BALANCE SHEET DETAIL
JUNE 30, ---------------- 1998 1997 ------- ------- (IN THOUSANDS) Inventories: Raw materials $ 3,875 $ 6,454 Work-in-process 6,215 8,450 Finished goods 6,708 7,119 ------- ------- $16,798 $22,023 ======= ======= Property, plant and equipment, net: Land $ 1,247 $ 1,247 Buildings and improvements 17,938 23,413 Machinery and equipment 50,188 46,733 Leasehold improvements 7,959 2,599 ------- ------- 77,332 73,992 Accumulated depreciation and amortization (38,998) (34,375) ------- ------- $38,334 $39,617 ======= =======
Building and improvements includes $8,750,000 of costs capitalized under a capital lease for the Company's facility in San Jose, California which was completed in June 1997. At June 30, 1998, accumulated amortization for this lease totaled $761,000. No amortization expense was recorded in 1997. 32
JUNE 30, ---------------- 1998 1997 ------- ------- (IN THOUSANDS) Accrued liabilities: Employee compensation and benefits $ 4,249 $ 8,925 Accrued warranty expense 3,994 2,741 Other 6,145 4,880 ------- ------- $14,388 $16,546 ======= ======= Long-term obligations: Note payable $ -- $ 5,709 Capital lease 8,583 8,603 ------- ------- 8,583 14,312 Current maturities (215) (5,729) ------- ------- $ 8,368 $ 8,583 ======= =======
The note payable bearing interest at 10.25% per annum was repaid in September 1997. The note was collateralized by land, building, and related personal property. The Company has a $7,000,000 unsecured bank line of credit which expires on May 1, 2000 and bears interest at the bank's prime rate, 8.5% at June 30, 1998. The line of credit agreement contains certain financial ratios to be maintained by the Company. It also requires the Company to have positive net income during the quarter ending March 31, 1999 and to maintain net income greater than zero not less than every other quarter after such period. The line of credit has not been utilized during the last three years. NOTE D--LEASE COMMITMENTS During 1997, the Company leased a facility in San Jose, California under which the land and building were accounted for as an operating lease and a capital lease, respectively. This lease expires in April 2009. A section of the facility has been sublet and accounted for as an operating lease. This sublease expires in November 2000. The minimum future sublease payments to be received at June 30, 1998 were $736,000 in 1999, $757,000 in 2000, and $324,000 in 2001. The Company leases certain other facilities and equipment under operating lease agreements which expire at various dates through 2001. Rental expense charged to operations was $1,406,000 in 1998, $1,923,000 in 1997, and $1,741,000 in 1996, respectively. Future minimum lease payments at June 30, 1998 are as follows:
CAPITAL OPERATING LEASE LEASE ------- --------- (IN THOUSANDS) FOR THE YEARS: 1999 $ 930 $1,091 2000 991 837 2001 1,055 652 2002 1,121 595 2003 1,189 595 Thereafter 8,401 3,454 ------- ------ Total minimum lease payments 13,687 $7,224 ====== Amount representing interest (8.5%) (5,104) ------- Present value of minimum lease payments 8,583 Current portion (215) ------- Long-term obligation $ 8,368 =======
33 NOTE E--INCOME TAXES Income tax provision (benefit) consists of:
YEAR ENDED JUNE 30, ----------------------- 1998 1997 1996 ------- ------ ------ (IN THOUSANDS) Current: Federal $ 791 $3,511 $1,250 State 242 (78) (56) Puerto Rico 1,034 588 902 Foreign 90 374 -- ------- ------ ------ 2,157 4,395 2,096 ------- ------ ------ Deferred: Federal (3,325) (817) 386 State (975) 134 (114) Puerto Rico (467) 171 (370) ------- ------ ------ (4,767) (512) (98) ------- ------ ------ $(2,610) $3,883 $1,998 ======= ====== ======
Deferred income tax provision (benefit) is recorded when income and expenses are recognized in different periods for financial reporting and tax purposes. The significant components of deferred income tax provision (benefit) are as follows:
YEAR ENDED JUNE 30, ---------------------- 1998 1997 1996 ------- ------ ----- (IN THOUSANDS) Tax credit and net operating loss carryforwards $(1,335) $1,064 $(156) Reserves and accruals (3,045) (824) 32 Depreciation and amortization (375) (614) (93) Deferred taxes on Puerto Rico earnings (294) 481 (688) Change in valuation allowance 282 (619) 807 ------- ------ ----- $(4,767) $ (512) $ (98) ======= ====== =====
The effective income tax rate differs from the federal statutory income tax rate as follows:
YEAR ENDED JUNE 30, -------------------- 1998 1997 1996 ----- ----- ----- Federal statutory income tax rate (35.0)% 35.0% 35.0% Federal tax benefit of Puerto Rico operations (20.8) (13.0) (17.2) Puerto Rico taxes 13.7 4.4 5.6 Research and development tax credit (4.8) (1.5) -- State income taxes, net of federal benefit (17.7) .3 (1.8) Other 1.6 (2.8) (.5) ----- ----- ----- Effective income tax rate (63.0)% 22.4% 21.1% ===== ===== =====
34 The principal components of deferred tax assets and liabilities are as follows:
JUNE 30, ---------------- 1998 1997 ------- ------- (IN THOUSANDS) Deferred tax assets: Tax credit carryforwards $ 5,831 $ 4,496 Reserves and accruals 6,561 3,516 Depreciation and amortization 174 -- ------- ------- 12,566 8,012 Valuation allowance (4,778) (4,496) ------- ------- 7,788 3,516 ------- ------- Deferred tax liabilities: Depreciation and amortization -- 201 Unremitted Puerto Rico earnings 2,483 2,777 ------- ------- 2,483 2,978 ------- ------- Net deferred tax assets $ 5,305 $ 538 ======= =======
Net deferred tax assets (liabilities) are comprised of the following:
JUNE 30, ---------------- 1998 1997 ------- ------- (IN THOUSANDS) Current assets $ 7,285 $ 3,193 Non-current liabilities (1,980) (2,655) ------- ------- Net deferred tax assets $ 5,305 $ 538 ======= =======
At June 30, 1998, for federal income tax purposes, the Company had research and development and investment tax credit carryforwards of approximately $3,231,000 which expire in the years 1999 through 2013, and alternative minimum tax credit carryforwards of approximately $1,356,000 which have no expiration date. Additionally, for state income tax purposes, the Company had research and development tax credit carryforwards of approximately $1,244,000 which have no expiration date. Based on the Company's assessment of the future realizability of deferred tax assets, a valuation allowance has been provided as it is more likely than not that sufficient taxable income will not be generated to realize certain tax credit carryforwards. At June 30, 1998, approximately $4,419,000 of the valuation allowance was attributable to the potential tax benefit of stock option transactions, which would be credited to common stock if realized. The Company operates a subsidiary in Puerto Rico under a grant providing for a partial exemption from Puerto Rico taxes through fiscal 2008. In addition, this subsidiary is taxed under Section 936 of the U.S. Internal Revenue Code which exempts qualified Puerto Rico source earnings, subject to certain wage- based limitations, from federal income taxes through fiscal 2006. This exemption will be further limited during the fiscal years 2003 through 2006 based on certain prior year Puerto Rico earnings. Appropriate taxes have been provided on this subsidiary's earnings all of which are intended to be remitted to the parent company. At June 30, l998, the total unremitted earnings of the Puerto Rico subsidiary and the related tax liability were approximately $15,425,000 and $2,483,000, respectively. 35 NOTE F--CONTINGENCIES In January 1994, a securities class action complaint was filed against the Company and certain of its present or former officers or directors in the United States District Court, Northern District of California. The action was filed on behalf of a putative class of purchasers of the Company's stock during the period April 6, 1993 through November 10, 1993. The complaint seeks unspecified money damages and alleges that the Company and certain of its present or former officers or directors violated federal securities laws in connection with various public statements made during the putative class period. The Court dismissed the first and second amended complaints with leave to amend. The plaintiff filed a third amended corrected complaint in August 1997. The Company filed a motion to dismiss this third amended complaint, which was denied in January 1998. Discovery is proceeding. The Company and its officers believe that the complaint is entirely without merit, and intend to continue to defend the action vigorously. The Company is also a party to certain other claims in the normal course of its operations. While the results of such claims cannot be predicted with any certainty, management, after consultation with counsel, believes that the final outcome of such matters will not have a material adverse effect on the Company's financial position or results of operations. NOTE G--RELATED PARTY TRANSACTIONS In March 1998, the Company extended two loans in the amounts of $400,000 and $500,000 to an executive officer in connection with his employment by the Company. The $400,000 loan, together with interest at 6% per annum, is to be forgiven in four equal installments on June 25, 1998, 1999, 2000 and 2001. The Company recognizes compensation expense in the amount of both the loan and interest to be forgiven during the applicable fiscal period. The $500,000 loan is interest free with a term of ten years to be repaid in 2008. Both loans are secured by a deed of trust pertaining to the executive officer's principal home in California. Pursuant to the loan agreements, any loan balance and/or accrued interest amount will become due and payable if the executive officer resigns or is terminated for cause. In July 1998, the Company funded an unsecured loan of $150,000, which is payable upon demand, to another executive officer. The loan is interest free and may be forgiven subject to certain conditions. During 1998, the Company paid $10,000 for consulting fees to a director of the Company. The Company paid $47,000 and $36,000 for marketing research in 1997 and 1996, respectively, to a firm whose managing director was also a director of the Company until August 1996. During 1995, two executive officers exercised stock options in exchange for notes of $43,000 bearing interest at approximately 6% per annum, payable annually. The notes were collateralized by the stock issued upon exercise of the stock options and were recorded as an offset against common stock. Such notes were repaid in 1997 and 1998, respectively. During 1993, the Company made a $95,000 unsecured 5% loan to an executive officer which was repaid in 1996. NOTE H--BENEFIT PLANS 401(k) Plans. The Company's U.S. and Puerto Rico employees are eligible to participate in the Company's 401(k) plans. The Company's discretionary contributions vest immediately and were $143,000, $105,000 and $102,000 in 1998, 1997 and 1996, respectively. NOTE I--SHAREHOLDERS' EQUITY Stock Options. The Company has a stock option plan under which employees and consultants may be granted non-qualified and incentive options to purchase shares of the Company's authorized but unissued common stock. Stock appreciation rights may also be granted under this plan, however, none has been granted. The Company's shareholders have approved a plan under which the number of shares reserved for issuance under the stock option plan will automatically increase each July by an amount equal to 3% of the Company's outstanding shares as of the last trading day of the Company's immediately preceding fiscal year. In July 1998, the number of shares reserved for issuance increased by 473,000. In addition, the Company has a director stock option plan under which non-employee directors are granted options each January to purchase 10,000 shares of 36 the Company's authorized but unissued common stock. All options have been granted at the fair market value of the Company's common stock on the date of grant and expire no later than ten years from the date of grant. Options granted to employees and consultants prior to fiscal 1999 and options granted to non-employee directors are generally exercisable in annual installments of 25%, 25% and 50% at the end of each of the three years following the date of grant. Options granted to employees and consultants after fiscal 1998 are generally exercisable at 25% at the end of the first year and 2.08% for each month thereafter for the following three years. Stock option activity for the three years ended June 30, 1998 is as follows:
OPTIONS OUTSTANDING SHARES -------------------------- AVAILABLE NUMBER WEIGHTED AVERAGE FOR GRANT OF SHARES EXERCISE PRICE --------- --------- ---------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Balances at June 30, 1995 280 1,577 $ 7.52 Authorized 650 -- -- Granted (871) 871 17.64 Exercised -- (427) 3.67 Canceled 370 (370) 21.12 ---- ----- Balances at June 30, 1996 429 1,651 10.80 Authorized 467 -- -- Granted (483) 483 14.57 Exercised -- (333) 5.47 Canceled 262 (262) 15.30 ---- ----- Balances at June 30, 1997 675 1,539 12.37 Authorized 476 -- -- Granted (789) 789 12.61 Exercised -- (75) 7.45 Canceled 123 (123) 14.80 Expired -- (5) 1.75 ---- ----- Balances at June 30, 1998 485 2,125 12.49 ==== =====
At June 30, 1998, 1997 and 1996, the number of shares and weighted average exercise price underlying exercisable options were 867,000 at $11.48, 573,000 at $11.08 and 593,000 at $7.24, respectively. The weighted average fair value, using the Black-Scholes method, of options granted was $5.17 in 1998, $6.62 in 1997 and $9.02 in 1996. The stock option activity includes the cancelation of options for 297,000 shares in April 1996 and the corresponding grant of new options in April 1996 at an exercise price of $11.98, the fair market value on the date of the new grants. The new options began revesting in April 1996. At the beginning of fiscal 1999, the Company offered its employees and directors a stock option repricing program in which new options were granted at an exchange rate of three shares for every four shares and one share for every two shares, respectively, of unexercised options as of July 14, 1998. The corresponding grant of new options in July 1998 was at an exercise price of $6.44, the fair market value on the date of the new grants. The new options retain the same vesting and expiration dates as the old options. The new options also contain a blackout period and are not exercisable until January 14, 1999. As a result, 1,260,000 old options were surrendered by employees for 945,000 new options, and 262,000 old options were returned by directors for 131,000 new options. 37 Additional information regarding options outstanding as of June 30, 1998 is as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------------------------------------------------------------------ WEIGHTED AVERAGE WEIGHTED RANGE OF NUMBER REMAINING WEIGHTED AVERAGE NUMBER AVERAGE EXERCISE PRICES OF SHARES CONTRACTUAL LIFE EXERCISE PRICE OF SHARES EXERCISE PRICE ------------------------------------------------------------------------------------------------ (IN THOUSANDS) (IN YEARS) (IN THOUSANDS) $ 2.38 -- $ 8.94 664 7.3 $ 7.44 373 $ 7.58 9.00 -- 13.25 587 7.8 12.26 241 11.87 13.50 -- 16.00 606 8.9 15.52 61 14.19 16.25 -- 22.75 268 6.4 18.68 192 17.74 ----- --- 2.38 -- 22.75 2,125 7.8 12.49 867 11.48 ===== ===
As discussed in Note A, the Company continues to account for its stock-based awards using the intrinsic value method in accordance with APB 25 and its related interpretations. Compensation expense has been recognized in the financial statements for employee stock arrangements when the fair market value of the stock exceeds the exercise price at the date of grant. SFAS 123 requires the disclosure of pro forma net income and earnings per share as if the Company had adopted the fair value method as of the beginning of 1996. Under SFAS 123, the fair value of stock based awards to employees is calculated through the use of option pricing models, even though such models were developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which significantly differ from the Company's stock option awards. These models also require subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. The Company's calculations were made using the Black-Scholes option pricing model with the following weighted average assumptions for 1998, 1997 and 1996: expected life, six months after vesting in 1998, one year after vesting in 1997 and one and one half years after vesting in 1996; stock volatility, 58% in both 1998 and 1997, and 63% in 1996; risk free interest rate, 5% to 6.5%; and no dividends during the expected term. The Company's calculations are based on the multiple option valuation approach and forfeitures are recognized as they occur. If the computed fair values of the 1998, 1997 and 1996 awards had been amortized to expense over the vesting period of the awards, pro forma consolidated net loss would have been $5,647,000 ($0.36 per share--basic, $0.36 per share--diluted) in 1998, pro forma consolidated net earnings would have been $10,527,000 ($0.67 per share--basic, $0.66 per share--diluted) in 1997 and $4,776,000 ($0.31 per share--basic, $0.30 per share--diluted) in 1996. However, the impact of outstanding nonvested stock options granted prior to 1996 has been excluded from the pro forma calculation; accordingly, the 1998, 1997 and 1996 pro forma adjustments are not indicative of future period pro forma adjustments, when the calculation will apply to all applicable stock options. In addition, Linfinity has a stock option plan under which options may be granted to purchase shares of Linfinity's authorized but unissued common stock with similar terms to the Company's stock option plan. During September 1997, Linfinity reserved an additional 500,000 shares of common stock for issuance under this plan, for a total of 2,500,000 shares of common stock. As of June 30, 1998, there were options outstanding to purchase 1,763,000 shares of Linfinity common stock at exercise prices ranging from $0.50 to $3.15 with a weighted average exercise price of $2.61 and 544,000 shares available for grant. As of June 30, 1998, there were exercisable options to purchase 757,000 shares of common stock at a weighted average exercise price of $2.08. The fair values of fiscal 1998, 1997 and 1996 option awards were not significant. Employee Stock Purchase Plan. The Company has an employee stock purchase plan under which eligible employees may authorize payroll deductions of up to 10% of their compensation to purchase shares of the Company's common stock at 85% of the fair market value at certain specified dates. Under this plan, 205,000 shares of common stock have been reserved and were available for issuance as of June 30, 1998. Under SFAS 123, the fair value of the employees' purchase rights was estimated using the Black-Scholes option pricing model with the following weighted average assumptions: expected life, 6 months; stock volatility, 38 58% in both 1998 and 1997 and 63% in 1996; risk free interest rates, 4.8% to 5.9%; and no dividends during the expected term. The weighted average fair value of those purchase rights granted in 1998, 1997 and 1996 was $4.51, $4.68 and $4.94, respectively. Common Share Purchase Rights. The Company has a shareholder rights plan which authorizes the issuance of one common share purchase right for each share of common stock. The rights expire in December 2000 and are not exercisable or transferable apart from the common stock until the occurrence of certain events. Such events include the acquisition of 20% or more of the Company's outstanding common stock or the commencement of a tender or exchange offer for 30% or more of the Company's outstanding common stock. If the rights become exercisable, each right entitles its holder to purchase one new share of common stock at an exercise price of $25.00, subject to certain antidilution adjustments. Additionally, if the rights become exercisable, a holder will be entitled, under certain circumstances, to purchase, for the exercise price, shares of common stock of the Company or in other cases, of the acquiring company, having a market value of twice the exercise price of the right. Under certain conditions, the Company may redeem the rights for a price of $0.01 per right or exchange each right not held by the acquirer for one share of the Company's common stock. Stock Repurchase Program. In April 1997, the Company's Board of Directors authorized a program to repurchase up to 500,000 shares of the Company's common stock to be used in conjunction with shares issued under the Company's stock option and employee stock purchase plans. The Company repurchased 268,000 shares and 90,000 shares in 1998 and 1997, respectively. In September 1998, the Company's Board of Directors authorized a program to repurchase up to 1,000,000 shares of the Company's common stock, once the April 1997 program is completed. 39 NOTE J--BUSINESS SEGMENT INFORMATION Industry Segment Information is as follows:
YEAR ENDED JUNE 30, --------------------------- 1998 1997 1996 -------- -------- -------- (IN THOUSANDS) Net Sales: Telecom Solutions $ 73,311 $ 89,718 $ 68,243 Linfinity Microelectronics Inc. 47,270 54,637 37,795 -------- -------- -------- $120,581 $144,355 $106,038 ======== ======== ======== Gross Profit Margin: Telecom Solutions $ 36,293 $ 44,015 $ 31,266 Linfinity Microelectronics Inc. 7,982 21,929 14,948 -------- -------- -------- $ 44,275 $ 65,944 $ 46,214 ======== ======== ======== Research and development expense: Telecom Solutions $ 12,387 $ 12,866 $ 9,581 Linfinity Microelectronics Inc. 6,423 5,591 5,832 -------- -------- -------- $ 18,810 $ 18,457 $ 15,413 ======== ======== ======== Selling, general and administrative expense: Telecom Solutions $ 19,090 $ 21,101 $ 15,805 Linfinity Microelectronics Inc. 11,496 10,388 6,733 -------- -------- -------- $ 30,586 $ 31,489 $ 22,538 ======== ======== ======== Operating income (loss): Telecom Solutions $ 4,816 $ 10,048 $ 5,880 Linfinity Microelectronics Inc. (9,937) 5,950 2,383 -------- -------- -------- $ (5,121) $ 15,998 $ 8,263 ======== ======== ======== Identifiable assets: Telecom Solutions $ 84,688 $ 89,924 $ 62,574 Linfinity Microelectronics Inc. 30,205 39,381 30,957 -------- -------- -------- $114,893 $129,305 $ 93,531 ======== ======== ======== Accounts receivable, net: Telecom Solutions $ 10,541 $ 11,224 $ 10,653 Linfinity Microelectronics Inc. 5,806 10,125 3,891 -------- -------- -------- $ 16,347 $ 21,349 $ 14,544 ======== ======== ======== Inventories, net: Telecom Solutions $ 11,589 $ 13,281 $ 10,530 Linfinity Microelectronics Inc. 5,209 8,742 7,317 -------- -------- -------- $ 16,798 $ 22,023 $ 17,847 ======== ======== ======== Depreciation and amortization expense: Telecom Solutions $ 5,056 $ 3,575 $ 2,654 Linfinity Microelectronics Inc. 3,330 2,973 2,517 -------- -------- -------- $ 8,386 $ 6,548 $ 5,171 ======== ======== ======== Capital expenditures: Telecom Solutions* $ 2,962 $ 20,074 $ 3,832 Linfinity Microelectronics Inc. 3,528 3,812 5,260 -------- -------- -------- $ 6,490 $ 23,886 $ 9,092 ======== ======== ========
-------- * The 1997 amount includes $8,750 for a facility acquired under capital lease. 40 Major Customers and Export Sales. No customer accounted for 10% or more of the Company's net sales in 1998 and 1996. In 1997, one of Telecom Solutions' customers accounted for 16% of the Company's total net sales. The Company's export sales, which were primarily to the Far East, Western Europe, Canada and Latin America accounted for 27%, 26% and 28% of the Company's net sales in 1998, 1997 and 1996, respectively. Export sales to the Far East accounted for 12%, 16%, and 13% of the Company's net sales in 1998, 1997 and 1996, respectively. NOTE K--QUARTERLY RESULTS AND STOCK MARKET DATA (UNAUDITED) Quarterly results and stock market data are as follows:
FIRST SECOND THIRD FOURTH TOTAL QUARTER QUARTER QUARTER QUARTER YEAR ------- ------- ------- ------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Fiscal Year 1998 Net sales: Telecom Solutions $18,453 $19,737 $16,786 $18,335 $ 73,311 Linfinity Microelectronics Inc. 15,530 14,600 7,422 9,718 47,270 ------- ------- ------- ------- -------- Total 33,983 34,337 24,208 28,053 120,581 Gross profit (loss) 16,181 16,716 (141) 11,519 44,275 Operating income (loss) 3,437 4,288 (12,263) (583) (5,121) Earnings (loss) before income taxes 3,665 4,567 (11,994) (378) (4,140) Net earnings (loss) 2,683 3,433 (7,483) (163) (1,530) Basic earnings (loss) per share .17 .22 (.47) (.01) (.10) Diluted earnings (loss) per share .17 .21 (.47) (.01) (.10) Common stock price range (A): High 18 18 5/8 12 1/4 7 13/16 18 5/8 Low 14 1/8 10 3/8 6 15/16 5 3/8 5 3/8 Fiscal Year 1997 Net sales: Telecom Solutions $20,002 $21,551 $23,534 $24,631 $ 89,718 Linfinity Microelectronics Inc. 12,021 13,896 14,220 14,500 54,637 ------- ------- ------- ------- -------- Total 32,023 35,447 37,754 39,131 144,355 Gross profit 13,657 16,110 17,511 18,666 65,944 Operating income 2,600 3,896 4,424 5,078 15,998 Earnings before income taxes 2,910 4,203 4,792 5,432 17,337 Net earnings 2,258 3,262 3,719 4,215 13,454 Basic earnings per share .14 .21 .23 .27 .85 Diluted earnings per share .14 .20 .23 .26 .83 Common stock price range (A): High 15 5/8 20 5/8 20 5/8 17 3/4 20 5/8 Low 11 7/8 14 7/16 13 7/8 12 1/2 11 7/8
-------- (A) The Company's common stock trades on The Nasdaq Stock Market under the symbol SYMM. At June 30, 1998, there were approximately 1,300 shareholders of record. Common stock prices are closing prices as reported on the Nasdaq Stock Market System. The Company has not paid cash dividends during the last two fiscal years and has no present plans to do so. 41 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders Symmetricom, Inc. We have audited the accompanying consolidated balance sheets of Symmetricom, Inc. and subsidiaries as of June 30, 1998 and 1997, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended June 30, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Symmetricom, Inc. and subsidiaries at June 30, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1998 in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP - ----------------------- DELOITTE & TOUCHE LLP San Jose, California July 22, 1998 (September 3, 1998, as to the last sentence of Note I) 42 SCHEDULE II SYMMETRICOM, INC. VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (IN THOUSANDS)
BALANCE CHARGED AT TO COSTS BALANCE BEGINNING AND DEDUCTIONS AT END OF YEAR EXPENSES (1) OF YEAR --------- -------- ---------- ------- Year ended June 30, 1998: Accrued warranty expense $2,741 $2,051 $ 798 $3,994 Allowance for doubtful accounts $ 457 $ 735 $ 713 $ 479 Year ended June 30, 1997: Accrued warranty expense $2,088 $1,966 $1,313 $2,741 Allowance for doubtful accounts $ 330 $ 210 $ 83 $ 457 Year ended June 30, 1996: Accrued warranty expense $2,520 $1,105 $1,537 $2,088 Allowance for doubtful accounts $ 339 $ 16 $ 25 $ 330
- -------- (1) Deductions represent costs charged or amounts written off against the reserve or allowance. 43 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. Symmetricom, Inc. /s/ Roger A. Strauch Date: September 24, 1998 By________________________________________ (ROGER A. STRAUCH) CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER (PRINCIPAL EXECUTIVE OFFICER, PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER) PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES TITLE DATE ---------- ----- ---- /s/ Roger A. Strauch Director, Chief Executive September 24, 1998 ___________________________________________ Officer and Chief Financial (ROGER A. STRAUCH) Officer (Principal Executive Officer, Principal Financial and Accounting Officer) /s/ Mary A. Rorabaugh Vice President, Finance and September 24, 1998 ___________________________________________ Secretary (MARY A. RORABAUGH) /s/ Richard W. Oliver Chairman of the Board September 24, 1998 ___________________________________________ (RICHARD W. OLIVER) /s/ William D. Rasdal Director September 24, 1998 ___________________________________________ (WILLIAM D. RASDAL) /s/ Robert M. Wolfe Director September 24, 1998 ___________________________________________ (ROBERT M. WOLFE)
44
EXHIBIT NUMBER INDEX OF EXHIBITS ------- ----------------- 3.1(1) Restated Articles of Incorporation. 3.2(2) Certificate of Amendment to Restated Articles of Incorporation filed December 11, 1990. 3.3(9) Certificate of Amendment to Restated Articles of Incorporation filed October 27, 1993. 3.4(13) Bylaws, as amended June 30, 1997. 4.1(3) Common Shares Rights Agreement dated December 6, 1990, between Silicon General, Inc. and Manufacturers Hanover Trust Company of California, including the form of Rights Certificate and the Summary of Rights attached thereto as Exhibits A and B, respectively. 4.2(4) Amendment to the Common Shares Rights Agreement dated February 5, 1993 between Silicon General, Inc. and Chemical Trust Company of California, formerly Manufacturers Hanover Trust Company of California, including the form of Rights Certificate and the Summary of Rights attached thereto as Exhibits A and B, respectively. 10.1(5)(14) Amended and Restated Non-Qualified Stock Option Plan (1982), with form of Employee Non-Qualified Stock Option (1982 Plan). 10.2(10)(14) 1990 Director Option Plan (as amended through October 25, 1995). 10.3(5)(14) Form of Director Option Agreement. 10.4(14) 1990 Employee Stock Plan (as amended through June 29, 1998). 10.5(5)(14) Forms of Stock Option Agreement, Restricted Stock Purchase Agreement, Tandem Stock Option/SAR Agreement, and Stock Appreciation Right Agreement for use with the 1990 Employee Stock Plan. 10.6(12)(14) 1994 Employee Stock Purchase Plan (as amended through December 1, 1996). 10.7(14) Consulting Agreement between the Company and Richard W. Oliver dated June 1, 1998. 10.8(14) Consulting Agreement between the Company and William D. Rasdal dated August 1, 1998. 10.9(9) Lease Agreement by and between Navstar Systems Limited, a subsidiary of the Company, and Baker Hughes Limited dated April 22, 1994. 10.10(11) Lease Agreement by and between the Company and Nexus Equity, Inc. dated June 10, 1996. 10.11 Fourth Amendment to the Revolving Credit Loan Agreement between the Company and Comerica Bank-California dated June 26, 1998. 10.12 First Amended and Restated Revolving Credit Loan Agreement between the Company and Comerica Bank-California dated June 29, 1998. 10.13(6) Form of Indemnification Agreement. 10.14(8) Linfinity Microelectronics Inc. Common Stock and Series A Preferred Stock Purchase Agreement dated June 28, 1993. 10.15(8) Tax Sharing Agreement between Linfinity Microelectronics Inc. and the Company dated June 28, 1993. 10.16(8) Intercompany Services Agreement between Linfinity Microelectronics Inc. and the Company dated June 28, 1993. 10.17(8)(14) Linfinity Microelectronics Inc. 1993 Stock Option Plan with form of Stock Option Agreement. 10.18(8) Linfinity Microelectronics Inc. Form of Indemnification Agreement. 10.19(14) Employment offer letter by and between the Company and Thomas W. Steipp, President and Chief Operating Officer, Telecom Solutions dated February 19, 1998. 10.20(7) Agreement for Sale and Purchase of the Navstar Business of Radley Services Limited. 10.21(7) Agreement for the Sale and Purchase of Certain Assets of Navstar Electronics, Inc.
45
EXHIBIT NUMBER INDEX OF EXHIBITS ------- ----------------- 10.22(14) Promissory Notes Secured by Deed of Trust issued by Thomas W. Steipp to the Company dated March 24, 1998. 10.23 Intercompany Revolving Loan Agreement between Linfinity Microelectronics Inc. and the Company dated August 15, 1998. 10.24(14) Promissory Note issued by James Peterson to Linfinity Microelectronics Inc. dated July 13, 1998. 21.1 Subsidiaries of the Company. 23.1 Independent Auditors' Consent and Report on Schedule. 27.1 Financial Data Schedule.
46 FOOTNOTES TO EXHIBITS (1) Incorporated by reference from Exhibits to Annual Report on Form 10-K for the fiscal year ended July 2, 1989. (2) Incorporated by reference from Exhibits to Annual Report on Form 10-K for the fiscal year ended June 30, 1991. (3) Incorporated by reference from Exhibits to Registration Statement on Form 8-A filed with the Securities and Exchange Commission on December 8, 1990. (4) Incorporated by reference from Exhibits to Registration Statement on Form 8-A filed with the Securities and Exchange Commission on February 11, 1993. (5) Incorporated by reference from Exhibits to Registration Statement on From S-8 filed with the Securities and Exchange Commission on December 24, 1990. (6) Incorporated by reference from Exhibits to the 1990 Proxy Statement. (7) Incorporated by reference from Exhibits to Current Report on Form 8-K filed with the Securities and Exchange Commission on September 2, 1993. (8) Incorporated by reference from Exhibits to Annual Report on Form 10-K for the fiscal year ended June 30, 1993. (9) Incorporated by reference from Exhibits to Annual Report on Form 10-K for the fiscal year ended June 30, 1994. (10) Incorporated by reference from Exhibits to Registration Statement on Form S-8 filed with the Securities and Exchange Commission on January 19, 1996. (11) Incorporated by reference from Exhibits to Annual Report on Form 10-K for the fiscal year ended June 30, 1996. (12) Incorporated by reference from Exhibits to Quarterly Report on Form 10-Q for the quarter ended December 31, 1996. (13) Incorporated by reference from Exhibits to Annual Report on Form 10-K for the fiscal year ended June 30, 1997. (14) Indicates a management contract or compensatory plan or arrangement. 47 EX-10.4 2 1990 EMPLOYEE STOCK PLAN AS AMENDED EXHIBIT 10.4 SYMMETRICOM, INC. 1990 EMPLOYEE STOCK PLAN (AS AMENDED THROUGH JUNE 29, 1998) 1. Purposes of the Plan. The purposes of this Employee Stock Plan are to -------------------- attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees and Consultants of the Company and its Subsidiaries and to promote the success of the Company's business. Options granted under the Plan may be incentive stock options (as defined under Section 422 of the Code) or non-statutory stock options, as determined by the Administrator at the time of grant of an option and subject to the applicable provisions of Section 422 of the Code, as amended, and the regulations promulgated thereunder. Stock appreciation rights ("SARs") and stock purchase rights may also be granted under the Plan. 2. Definitions. As used herein, the following definitions shall apply: ----------- (a) "Administrator" means the Board or any of its Committees as shall --------------- be administering the Plan, in accordance with Section 4 of the Plan. (b) "Board" means the Board of Directors of the Company. ------- (c) "Code" means the Internal Revenue Code of 1986, as amended from ------ time to time, and any successor thereto. (d) "Common Stock" means the Common Stock of the Company. -------------- (e) "Company" means Symmetricom, Inc., a California corporation. --------- (f) "Committee" means a Committee, if any, appointed by the Board in ----------- accordance with paragraph (a) of Section 4 of the Plan. (g) "Consultant" means any person, including an advisor, who is ------------ engaged by the Company or any Parent or Subsidiary to render services to the Company. The term Consultant shall include directors of the Company. (h) "Continuous Status as an Employee or Consultant" means the absence ------------------------------------------------ of any interruption or termination of the employment or consulting relationship by the Company or any Subsidiary. Continuous Status as an Employee or Consultant shall not be considered interrupted in the case of: (i) sick leave; (ii) military leave; (iii) any other leave of absence approved by the Board, provided that such leave is for a period of not more than ninety (90) days, unless reemployment upon the expiration of such leave is guaranteed by contract or statute, or unless provided otherwise pursuant to Company policy adopted from time to time; or (iv) in the case of transfers between locations of the Company or between the Company, its Subsidiaries or its successor. (i) "Disability" means total and permanent disability, as defined in ------------ Section 22(e)(3) of the Code. (j) "Employee" means any person, including officers and directors, ---------- employed by the Company or any Subsidiary. The payment of directors' fees by the Company shall not be sufficient to constitute "employment" by the Company. (k) "Exchange Act" means the Securities Exchange Act of 1934, as -------------- amended. (l) "Fair Market Value" means, as of any date, the value of Common ------------------- Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the National Market System of the National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") System, the Fair Market Value of a Share of Common Stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such system or exchange (or the exchange with the greatest volume of trading in Common Stock) on the day of determination, as reported in the Wall Street Journal or such other source as the Administrator deems reliable; (ii) If the Common Stock is quoted on the NASDAQ System (but not on the National Market System thereof) or regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high and low asked prices for the Common Stock on the day of determination, as reported in the Wall Street Journal or such other source as the Administrator deems reliable; (iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator. (m) "Incentive Stock Option" means an Option that satisfies the ------------------------ provisions of Section 422A of the Code. (n) "Nonstatutory Stock Option" means an Option that is not an --------------------------- Incentive Stock Option. (o) "Option" means an Option granted pursuant to the Plan. -------- (p) "Optioned Stock" means the Common Stock subject to an Option or ---------------- Right. (q) "Optionee" means an Employee or Consultant who receives an Option ---------- or Right. (r) "Parent" corporation shall have the meaning defined in Section -------- 425(e) of the Code. (s) "Plan" means this 1990 Employee Stock Plan. ------ -2- (t) "Restricted Stock" means shares of Common Stock acquired pursuant ------------------ to a grant of Stock Purchase Rights under Section 8 below. (u) "Right" means and includes SARs and Stock Purchase Rights granted ------- pursuant to the Plan. (v) "SAR" means a stock appreciation right granted pursuant to Section ----- 7 below. (w) "Share" means the Common Stock, as adjusted in accordance with ------- Section 11 of the Plan. (x) "Stock Purchase Right" means the right to purchase Common Stock ---------------------- pursuant to Section 8. (y) "Subsidiary" corporation shall have the meaning defined in Section ------------ 425(f) of the Code. In addition, the terms "Rule 16b-3" and "Applicable Laws," the term "Insiders," the term "Tax Date," and the terms "Change of Control" and "Change of Control Price," shall have the meanings set forth, respectively, in Sections 4, 7, 9 and 11 below. 3. Stock Subject to the Plan. Subject to the provisions of Section 11 of ------------------------- the Plan, the total number of Shares reserved and available for distribution pursuant to awards made under the Plan shall be two million, two hundred thousand (2,200,000), increased on the first day of each fiscal year of the Company, beginning with the fiscal year commencing July 1, 1996, by a number equal to 3.0% of the number of shares outstanding as of the last trading day of the Company's immediately preceding fiscal year. The maximum number of Shares reserved and available for issuance pursuant to Incentive Stock Options is 2,200,000. The Shares may be authorized but unissued, or reacquired stock. If an Option or Right should expire or become unexercisable for any reason without having been exercised in full, the unpurchased Shares which were subject thereto shall, unless the Plan shall have been terminated, become available for other Options or Rights under the Plan. 4. Administration of the Plan. -------------------------- (a) Procedure. --------- (i) Administration With Respect to Directors and Officers. With ----------------------------------------------------- respect to grants of Options or Rights to Employees who are also officers or directors of the Company, the Plan shall be administered by (A) the Board if the Board may administer the Plan in compliance with Rule 16b-3 promulgated under the Exchange Act or any successor rule ("Rule 16b-3") with respect to a plan intended to qualify thereunder as a discretionary plan, or (B) a Committee designated by the Board to administer the Plan, which Committee shall be constituted in such a manner as to permit -3- the Plan to comply with Rule 16b-3 with respect to a plan intended to qualify thereunder as a discretionary plan. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies, however caused, and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by Rule 16b-3 with respect to a plan intended to qualify thereunder as a discretionary plan. (ii) Administration With Respect to Consultants and Other ---------------------------------------------------- Employees. With respect to grants of Options or Rights to --------- Employees or Consultants who are neither directors nor officers of the Company, the Plan shall be administered by (A) the Board or (B) a Committee designated by the Board, which Committee shall be constituted in such a manner as to satisfy the legal requirements, if any, relating to the administration of incentive stock option plans under California corporate and securities laws and under the Code (the "Applicable Laws"). Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies, however caused, and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by the Applicable Laws. (iii) Multiple Administrative Bodies. If permitted by Rule ------------------------------ 16b-3, the Plan may be administered by different bodies with respect to directors, non-director officers and Employees who are neither directors nor officers and Consultants who are not directors. (b) Powers of the Administrator. Subject to the provisions of the --------------------------- Plan and in the case of a Committee, the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion: (i) to determine the Fair Market Value of the Common Stock, in accordance with Section 2(l) of the Plan; (ii) to select the officers, Consultants and Employees to whom Options and Rights may from time to time be granted hereunder; (iii) to determine whether and to what extent Options and Rights or any combination thereof, are granted hereunder; (iv) to determine the number of shares of Common Stock to be covered by each such award granted hereunder; (v) to approve forms of agreement for use under the Plan; (vi) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted hereunder (including, but not limited to, the share price and -4- any restriction or limitation, or any vesting acceleration or waiver of forfeiture restrictions regarding any Option or other award and/or the shares of Common Stock relating thereto, based in each case on such factors as the Administrator shall determine, in its sole discretion); (vii) to determine whether and under what circumstances an Option may be settled in cash under subsection 7(a)(vii) instead of Common Stock; (viii) to determine whether, to what extent and under what circumstances Common Stock and other amounts payable with respect to an award under this Plan shall be deferred either automatically or at the election of the participant (including providing for and determining the amount (if any) of any deemed earnings on any deferred amount during any deferral period); (ix) to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option shall have declined since the date the Option was granted; and (x) to determine the terms and restrictions applicable to Options and Rights and any Restricted Stock acquired pursuant to Rights. (c) Effect of Committee's Decision. All decisions, determinations and ------------------------------ interpretations of the Administrator shall be final and binding. 5. Eligibility. ----------- (a) Nonstatutory Stock Options and Rights may be granted only to Employees and Consultants. Incentive Stock Options may be granted only to Employees. An Employee who has been granted an Option or Right may, if he or she is otherwise eligible, be granted additional Options or Rights. Each Option shall be evidenced by a written Option agreement, which shall expressly identify the Options as Incentive Stock Options or as Nonstatutory Stock Options, and which shall be in such form and contain such provisions as the Administrator shall from time to time deem appropriate. Without limiting the foregoing, the Administrator may, at any time, or from time to time, authorize the Company, with the consent of the respective recipients, to issue Options in exchange for the surrender and cancellation of any or all outstanding Options, other options, or Rights. (b) Neither the Plan nor any Option or Right agreement shall confer upon any Optionee any right with respect to continuation of employment by the Company, nor shall it interfere in any way with the Optionee's right or the Company's right to terminate the Optionee's employment at any time. (c) The following limitations shall apply to grants of Options and Rights to Employees: -5- (i) No Employee shall be granted, in any fiscal year of the Company, Options and Rights to purchase more than an aggregate of 250,000 Shares. (ii) In connection with his or her initial employment, an Employee may be granted Options and Rights to purchase up to an additional 250,000 Shares in the aggregate which shall not count against the limit set forth in subsection (i) above. (iii) The foregoing limitations shall be adjusted proportionately in connection with any change in the Company's capitalization as described in Section 11. (iv) If an Option or Right is cancelled in the same fiscal year of the Company in which it was granted (other than in connection with a transaction described in Section 11), the cancelled Option or Right will be counted against the limits set forth in subsections (i) and (ii) above. For this purpose, if the exercise price of an Option or Right is reduced, the transaction will be treated as a cancellation of the Option or Right and the grant of a new Option or Right. 6. Term of Plan. Subject to Section 17 of the Plan, the Plan shall become ------------ effective upon the earlier to occur of its adoption by the Board or its approval by the shareholders of the Company as described in Section 17. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 13 of the Plan. 7. Options and SARs. ---------------- (a) Options. The Administrator, in its discretion, may grant Options ------- to eligible participants and shall determine whether such Options shall be Incentive Stock Options or Nonstatutory Stock Options. Each Option shall be evidenced by a written Option agreement which shall expressly identify the Options as Incentive Stock Options or as Nonstatutory Stock Options, and be in such form and contain such provisions as the Administrator shall from time to time deem appropriate. Without limiting the foregoing, the Administrator may, at any time, or from time to time, authorize the Company, with the consent of the respective recipients, to issue Options or Rights in exchange for the surrender and cancellation of any or all outstanding Options or Rights. Option agreements shall contain the following terms and conditions: (i) Option Price; Number of Shares. The per Share exercise price ------------------------------ for the Shares issuable pursuant to an Option shall be such price as is determined by the Administrator, but shall in no event be less than 85% of the Fair Market Value of Common Stock, determined as of the date of grant of the Option. In the event that the Administrator shall reduce the exercise price, the exercise price shall be no less than 85% of the Fair Market Value as of the date of that reduction. The Option agreement shall specify the number of Shares to which it pertains. (ii) Waiting Period and Exercise Dates. At the time an Option --------------------------------- is granted, the Administrator will determine the terms and conditions to be satisfied before Shares may be -6- purchased, including the dates on which Shares subject to the Option may first be purchased. The Administrator may specify that an Option may not be exercised until the completion of the service period specified at the time of grant. (Any such period is referred to herein as the "waiting period.") At the time an Option is granted, the Administrator shall fix the period within which the Option may be exercised, which shall not be less than the waiting period, if any, nor, in the case of an Incentive Stock Option, more than ten (10) years, from the date of grant. (iii) Form of Payment. The consideration to be paid for the Shares --------------- to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant) and may consist entirely of (1) cash, (2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares acquired upon exercise of an Option either have been owned by the Optionee for more than six months on the date of surrender or were not acquired, directly or indirectly, from the Company, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised, (5) delivery of a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company the amount of sale or loan proceeds required to pay the exercise price, (6) delivery of an irrevocable subscription agreement for the Shares which irrevocably obligates the Optionee to take and pay for the Shares not more than twelve months after the date of delivery of the subscription agreement, (7) any combination of the foregoing methods of payment, or (8) such other consideration and method of payment for the issuance of Shares to the extent permitted under Applicable Laws. (iv) Termination of Employment or Consulting Relationship. In the ---------------------------------------------------- event an Optionee's Continuous Status as an Employee or Consultant terminates (other than upon the Optionee's death or Disability), the Optionee may exercise his or her Option, but only within such period of time as is determined by the Administrator at the time of grant, not to exceed six (6) months (three (3) months in the case of an Incentive Stock Option) from the date of such termination, and only to the extent that the Optionee was entitled to exercise it at the date of such termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). To the extent that Optionee was not entitled to exercise an Option at the date of such termination, and to the extent that the Optionee does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate. (v) Special Incentive Stock Option Provisions. In addition to the ----------------------------------------- foregoing, Options granted under the Plan which are intended to be Incentive Stock Options under Section 422A of the Code shall be subject to the following terms and conditions: (A) Exercise Price. The per share exercise price of an Incentive -------------- Stock Option shall be no less than 100% of the Fair Market Value per Share on the date of grant. (B) Dollar Limitation. To the extent that the aggregate Fair ----------------- Market Value of (i) the Shares with respect to which Options designated as Incentive Stock Options plus (ii) the shares of stock of the Company, Parent and any Subsidiary with respect to which other -7- incentive stock options are exercisable for the first time by an Optionee during any calendar year under all plans of the Company and any Parent and Subsidiary exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of the preceding sentence, (i) Options shall be taken into account in the order in which they were granted, and (ii) the Fair Market Value of the Shares shall be determined as of the time the Option or other incentive stock option is granted. (C) 10% Shareholder. If any Optionee to whom an Incentive Stock --------------- Option is to be granted pursuant to the provisions of the Plan is, on the date of grant, the owner of Common Stock (as determined under Section 425(d) of the Code) possessing more than 10% of the total combined voting power of all classes of stock of the Company or any Subsidiary, then the following special provisions shall be applicable to the Option granted to such individual: (1) The per Share Option price of Shares subject to such Incentive Stock Option shall not be less than 110% of the Fair Market Value of Common Stock on the date of grant; and (2) The Option shall not have a term in excess of five (5) years from the date of grant. Except as modified by the preceding provisions of this subsection 7(a)(v) and except as otherwise limited by Section 422A of the Code, all of the provisions of the Plan shall be applicable to the Incentive Stock Options granted hereunder. (vi) Other Provisions. Each Option granted under the Plan may ---------------- contain such other terms, provisions, and conditions not inconsistent with the Plan as may be determined by the Administrator. (vii) Buyout Provisions. The Administrator may at any time offer to ----------------- buy out for a payment in cash or Shares, an Option previously granted, based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. (b) SARs. ---- (i) In Connection with Options. At the sole discretion of the -------------------------- Administrator, SARs may be granted in connection with all or any part of an Option, either concurrently with the grant of the Option or at any time thereafter during the term of the Option. The following provisions apply to SARs that are granted in connection with Options: (A) The SAR shall entitle the Optionee to exercise the SAR by surrendering to the Company unexercised a portion of the related Option. The Optionee shall receive in exchange from the Company an amount equal to the excess of (x) the Fair Market Value on the date of exercise of the SAR of the Common Stock covered by the surrendered portion of the related Option over (y) the exercise price of the Common Stock covered by the surrendered portion of the related Option. Notwithstanding the foregoing, the Administrator may place limits on the amount -8- that may be paid upon exercise of an SAR; provided, however, that such limit shall not restrict the exercisability of the related Option. (B) When an SAR is exercised, the related Option, to the extent surrendered, shall cease to be exercisable. (C) An SAR shall be exercisable only when and to the extent that the related Option is exercisable and shall expire no later than the date on which the related Option expires. (D) An SAR may only be exercised at a time when the Fair Market Value of the Common Stock covered by the related Option exceeds the exercise price of the Common Stock covered by the related Option. (ii) Independent of Options. At the sole discretion of the ---------------------- Administrator, SARs may be granted without related Options. The following provisions apply to SARs that are not granted in connection with Options: (A) The SAR shall entitle the Optionee, by exercising the SAR, to receive from the Company an amount equal to the excess of (x) the Fair Market Value of the Common Stock covered by the exercised portion of the SAR, as of the date of such exercise, over (y) the Fair Market Value of the Common Stock covered by the exercised portion of the SAR, as of the last market trading date prior to the date on which the SAR was granted; provided, however, that the Administrator may place limits on the aggregate amount that may be paid upon exercise of an SAR. (B) SARs shall be exercisable, in whole or in part, at such times as the Administrator shall specify in the Optionee's SAR agreement. (iii) Form of Payment. The Company's obligation arising upon the --------------- exercise of an SAR may be paid in Common Stock or in cash, or in any combination of Common Stock and cash, as the Administrator, in its sole discretion, may determine. Shares issued upon the exercise of an SAR shall be valued at their Fair Market Value as of the date of exercise. (iv) Section 16 Restrictions. SARs granted to persons who are ----------------------- subject to Section 16 of the Exchange Act ("Insiders") shall be subject to any additional restrictions applicable to SARs granted to such persons in compliance with Rule 16b-3. An Insider may only exercise an SAR during such time or times as are permitted by Rule 16b-3. (c) Method of Exercise. ------------------ (i) Procedure for Exercise; Rights as a Shareholder. Any Option or ----------------------------------------------- SAR granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator and as shall be permissible under the terms of the Plan. -9- An Option may not be exercised for a fraction of a Share. An Option or SAR shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option or SAR by the person entitled to exercise the Option or SAR and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may, as authorized by the Administrator (and, in the case of an Incentive Stock Option, determined at the time of grant) and permitted by the Option Agreement consist of any consideration and method of payment allowable under subsection 7(a)(iii) of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 11 of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter shall be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. Exercise of an SAR in any manner shall, to the extent the SAR is exercised, result in a decrease in the number of Shares which thereafter shall be available for purposes of the Plan, and the SAR shall cease to be exercisable to the extent it has been exercised. (ii) Rule 16b-3. Options and SARs granted to Insiders must comply ---------- with the applicable provisions of Rule 16b-3 and shall contain such additional conditions or restrictions as may be required thereunder to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions. (iii) Termination of Employment or Consulting Relationship. In the ---------------------------------------------------- event an Optionee's Continuous Status as an Employee or Consultant terminates (other than upon the Optionee's death or Disability), the Optionee may exercise his or her Option or SAR, but only within such period of time as is determined by the Administrator at the time of grant, not to exceed six (6) months (three (3) months in the case of an Incentive Stock Option) from the date of such termination, and only to the extent that the Optionee was entitled to exercise it at the date of such termination (but in no event later than the expiration of the term of such Option or SAR as set forth in the Option or SAR Agreement). To the extent that Optionee was not entitled to exercise an Option or SAR at the date of such termination, and to the extent that the Optionee does not exercise such Option or SAR (to the extent otherwise so entitled) within the time specified herein, the Option or SAR shall terminate. (iv) Disability of Optionee. In the event an Optionee's Continuous ---------------------- Status as an Employee or Consultant terminates as a result of the Optionee's Disability, the Optionee may exercise his or her Option or SAR, but only within six (6) months from the date of such termination, and only to the extent that the Optionee was entitled to exercise it at the date of such termination (but in no event later than the expiration of the term of such Option or SAR as set forth in the Option or -10- SAR Agreement). To the extent that Optionee was not entitled to exercise an Option or SAR at the date of such termination, and to the extent that the Optionee does not exercise such Option or SAR (to the extent otherwise so entitled) within the time specified herein, the Option or SAR shall terminate. (v) Death of Optionee. In the event of an Optionee's death, the ----------------- Optionee's estate or a person who acquired the right to exercise the deceased Optionee's Option or SAR by bequest or inheritance may exercise the Option or SAR, but only within six (6) months following the date of death, and only to the extent that the Optionee was entitled to exercise it at the date of death (but in no event later than the expiration of the term of such Option or SAR as set forth in the Option or SAR Agreement). To the extent that Optionee was not entitled to exercise an Option or SAR at the date of death, and to the extent that the Optionee's estate or a person who acquired the right to exercise such Option does not exercise such Option or SAR (to the extent otherwise so entitled) within the time specified herein, the Option or SAR shall terminate. 8. Stock Purchase Rights. --------------------- (a) Rights to Purchase. Stock Purchase Rights may be issued either ------------------ alone, in addition to, or in tandem with other awards granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing of the terms, conditions and restrictions related to the offer, including the number of Shares that the offeree shall be entitled to purchase, the price to be paid (which price shall not be less than 50% of the Fair Market Value of the Shares as of the date of the offer), and the time within which the offeree must accept such offer, which shall in no event exceed thirty (30) days from the date upon which the Administrator made the determination to grant the Stock Purchase Right. The offer shall be accepted by execution of a Restricted Stock purchase agreement in the form determined by the Administrator. Shares purchased pursuant to the grant of a Stock Purchase Right shall be referred to herein as "Restricted Stock." (b) Repurchase Option. Unless the Administrator determines otherwise, ----------------- the Restricted Stock purchase agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser's employment with the Company for any reason (including death or Disability). The purchase price for Shares repurchased pursuant to the Restricted Stock purchase agreement shall be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at such rate as the Administrator may determine. (c) Other Provisions. The Restricted Stock purchase agreement shall ---------------- contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion. In addition, the provisions of Restricted Stock purchase agreements need not be the same with respect to each purchaser. (d) Section 16 Restrictions. Stock Purchase Rights granted to ----------------------- Insiders, and Shares purchased by Insiders in connection with Stock Purchase Rights, shall be subject to any -11- restrictions applicable thereto in compliance with Rule 16b-3. An Insider may only purchase Shares pursuant to the grant of a Stock Purchase Right, and may only sell Shares purchased pursuant to the grant of a Stock Purchase Right, during such time or times as are permitted by Rule 16b-3. (e) Rights as a Shareholder. Once the Stock Purchase Right is ----------------------- exercised, the purchaser shall have the rights equivalent to those of a shareholder, and shall be a shareholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 11 of the Plan. 9. Stock Withholding to Satisfy Withholding Tax Obligations. At the -------------------------------------------------------- discretion of the Administrator, Optionees may satisfy withholding obligations as provided in this Section 9. When an Optionee incurs tax liability in connection with the an Option or Right, which tax liability is subject to tax withholding under applicable tax laws, and the Optionee is obligated to pay the Company an amount required to be withheld under applicable tax laws, the Optionee may satisfy the withholding tax obligation by electing to have the Company withhold from the Shares to be issued upon exercise of the Option, or the Shares to be issued in connection with the Right, if any, that number of Shares having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined (the "Tax Date"). All elections by an Optionee to have Shares withheld for this purpose shall be made in writing in a form acceptable to the Administrator and shall be subject to the following restrictions: (a) the election must be made on or prior to the applicable Tax Date; (b) once made, the election shall be irrevocable as to the particular Shares of the Option or Right as to which the election is made; (c) all elections shall be subject to the consent or disapproval of the Administrator; (d) if the Optionee is an Insider, the election must comply with the applicable provisions of Rule 16b-3 and shall be subject to such additional conditions or restrictions as may be required thereunder to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions. In the event the election to have Shares withheld is made by an Optionee and the Tax Date is deferred under Section 83 of the Code because no election is filed under Section 83(b) of the Code, the Optionee shall receive the full number of Shares with respect to which the Option or Right is exercised but such Optionee shall be unconditionally obligated to tender back to the Company the proper number of Shares on the Tax Date. -12- 10. Non-Transferability of Options. Options and Rights may not be sold, ------------------------------ pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. 11. Adjustments Upon Changes in Capitalization or Merger. ---------------------------------------------------- (a) Subject to any required action by the shareholders of the Company, the number of Shares covered by each outstanding Option and Right, and the number of Shares which have been authorized for issuance under the Plan but as to which no Options or Rights have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option or Right, as well as the price per Share covered by each such outstanding Option or Right, shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the aggregate number of issued Shares effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of Shares of stock of any class, or securities convertible into Shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to an Option or Right. In the event of the proposed dissolution or liquidation of the Company, all outstanding Options and Rights will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Board. The Board may, in the exercise of its sole discretion in such instances, declare that any Option or Right shall terminate as of a date fixed by the Board and give each Optionee the right to exercise his Option or Right as to all or any part of the Optioned Stock or Right, including Shares as to which the Option or Right would not otherwise be exercisable. Subject to the provisions of paragraph (b) hereof, in the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, each outstanding Option and Right shall be assumed or an equivalent option or Right shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation, unless the Board determines, in the exercise of its sole discretion and in lieu of such assumption or substitution, that the Optionee shall have the right to exercise the Option or Right as to all of the Optioned Stock, including Shares as to which the Option or Right would not otherwise be exercisable. If the Board makes an Option or Right fully exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Company shall notify the Optionee that the Option or Right shall be fully exercisable for a period of fifteen (15) days from the date of such notice, and the Option or Right will terminate upon the expiration of such period. For purposes of this paragraph, an Option granted under the Plan shall be deemed to be assumed if, following the sale of assets or merger, the Option confers the right to purchase, for each Share of -13- Optioned Stock subject to the Option immediately prior to the sale of assets or merger, the consideration (whether stock, cash or other securities or property) received in the sale of assets or merger by holders of Common Stock for each Share held on the effective date of the transaction (and if such holders were offered a choice of consideration, the type of consideration chosen by the holders if a majority of the outstanding Shares); provided, however, that if such consideration received in the sale of assets or merger was not solely Common Stock of the successor corporation or its parent, the Board may, with the consent of the successor corporation and the participant, provide for the consideration to be received upon exercise of the Option or Right to be solely Common Stock of the successor corporation or its parent equal in Fair Market Value to the per share consideration received by holders of Common Stock in the sale of assets or merger. (b) In the event of a "Change in Control" of the Company, as defined in paragraph (c) below, any or all or none of the following acceleration and valuation provisions shall apply, as the Board, in its discretion, shall determine prior to such Change of Control: (i) Any Options and Rights outstanding as of the date such Change in Control is determined to have occurred that are not yet exercisable and vested on such date shall become fully exercisable and vested; (ii) To the extent they are exercisable and vested, the value of all outstanding Options and Rights shall, unless otherwise determined by the Board at or after grant, shall be cashed out at the Change in Control Price, reduced by the exercise price applicable to such Options or Rights. The cash out proceeds shall be paid to the Optionee or, in the event of death of an Optionee prior to payment, to the estate of the Optionee or to a person who acquired the right to exercise the Option or Right by bequest or inheritance. (c) Definition of "Change in Control". For purposes of this Section --------------------------------- 11, a "Change in Control" means the happening of any of the following: (i) When any "person," as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than the Company, a Subsidiary or a Company employee benefit plan, including any trustee of such plan acting as trustee) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the combined voting power of the Company's then outstanding securities; or (ii) The occurrence of a transaction requiring shareholder approval, and involving the sale of all or substantially all of the assets of the Company or the merger of the Company with or into another corporation. (d) Change in Control Price. For purposes of this Section 11, "Change ----------------------- in Control Price" shall be, as determined by the Board, (i) the highest closing sale price of a Share of Common Stock as reported by the NASDAQ System and as appearing in the Wall Street Journal (or, in the event the Common Stock is listed on a stock exchange, the highest closing price on such exchange as -14- reported on the Composite Transaction Reporting System), at any time within the 60 day period immediately preceding the date of determination of the Change in Control Price by the Board (the "60-Day Period"), or (ii) the highest price paid or offered, as determined by the Board, in any bona fide transaction or bona fide offer related to the Change in Control of the Company, at any time within the 60-Day Period, or (iii) some lower price as the Board, in its discretion, determines to be a reasonable estimate of the fair market value of a share of Common Stock. 12. Time of Granting Options and Rights. The date of grant of an Option ----------------------------------- or Right shall, for all purposes, be the date on which the Administrator makes the determination granting such Option or Right. Notice of the determination shall be given to each Employee or Consultant to whom an Option or Right is so granted within a reasonable time after the date of such grant. 13. Amendment and Termination of the Plan. ------------------------------------- (a) Amendment and Termination. The Board may at any time amend, ------------------------- alter, suspend, or discontinue the Plan, but no amendment, alteration, suspension, or discontinuation shall be made which would impair the rights of any Optionee under any grant theretofore made, without his or her consent. In addition, to the extent necessary and desirable to comply with Rule 16b-3 under the Exchange Act or under Section 422A of the Code (or any other applicable law or regulation), the Company shall obtain shareholder approval of any Plan amendment in such a manner and to such a degree as required. (b) Effect of Amendment or Termination. Any such amendment or ---------------------------------- termination of the Plan shall not affect Options or Rights already granted and such Options and Rights shall remain in full force and effect as if this Plan had not been amended or terminated. 14. Conditions Upon Issuance of Shares. Shares shall not be issued with ---------------------------------- respect to an Option or Right unless the exercise of such Option or Right and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an Option or the issuance of Shares on exercise of an Option or Right, the Company may require the person exercising such Option or Right to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law. 15. Reservation of Shares. The Company, during the term of this Plan, --------------------- will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. -15- Inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the non-issuance or sale of such Shares as to which such requisite authority shall not have been obtained. 16. Agreements. Options and Rights shall be evidenced by written ---------- agreements in such form as the Board shall approve from time to time. 17. Shareholder Approval. Continuance of the Plan shall be subject to -------------------- approval by the shareholders of the Company within twelve (12) months before or after the date the Plan is adopted as provided in Section 6. Such shareholder approval shall be obtained in the degree and manner required under applicable state and federal law. -16- EX-10.7 3 CONSULTING AGREEMENT BETWEEN THE CO & R. OLIVER EXHIBIT 10.7 CONSULTING AGREEMENT SYMMETRICOM . - -------------------------------------------------------------------------------- This Consulting Agreement ("AGREEMENT") is made and entered into as of this first day of June ,199 8 between: ----- ------------------- ----- . CONSULTANT Richard W. Oliver ------------------------------------------------------------------- having a principal place of business at 885 Curtiswood Lane Nashville, TN 37204 -------------------------------------------------------------------- AND . TELECOM SOLUTIONS, a division of SymmetriCom, Inc. having a principal place of business at 2300 Orchard Parkway, San Jose, California 95131 INDEPENDENT CONTRACTOR STATUS It is the express intention of the parties that Consultant is an independent contractor and not an employee, agent, joint venturer or partner of SymmetriCom. Nothing in the agreement shall be interpreted or construed as creating or establishing the relationship of employer and employee between Consultant and SymmetriCom or any employee or agent of SymmetriCom. Both parties acknowledge that Consultant is not an employee for state or federal tax purposes. Consultant shall retain the right to perform services for others during the term of this agreement. SERVICES TO BE PERFORMED BY CONSULTANT SPECIFIC SERVICES/SCOPE OF WORK Consultant will provide to SymmetriCom the work, work product, and/or the services, as described on Attachment A appended hereto and pursuant to the task schedule, if any, also set forth Attachment A. METHOD OF PERFORMING SERVICES Consultant will determine the method, details, and means of performing the above-described services. SymmetriCom shall have no right to, and shall not, control the manner or determine the method of accomplishing Consultant's services. PROPERTY RIGHTS With respect to designs of any type or description, drawings, specifications, software development, and/or other copyrightable subject matter developed by Consultant pursuant to any Specific Services, Consultant agrees that the relationship of Consultant and SymmetriCom is and will be considered a "work made for hire". As such, Consultant agrees that SymmetriCom will be deemed to be the author and copyright owner of all copyrightable subject matter created by Consultant pursuant to any Specific Services. Consultant will promptly make full written disclosure to SymmetriCom, will hold in trust for the sole right and benefit of SymmetriCom, and will assign to SymmetriCom all of Consultant's right, title, and interest in and to any and all inventions, original works of authorship, developments, improvements, and/or trade secrets which Consultant conceives, develops, or reduces to practice, or causes to be conceived, developed, or reduced to practice, in connection with any Specific Services. Consultant will assist SymmetriCom to obtain United States or foreign letters patent, copyrights, or mask work rights covering inventions, original works or authorship, developments, improvements, and/or trade secrets which are assigned hereunder to SymmetriCom, and SymmetriCom will compensate Consultant at a reasonable rate for time actually spent by Consultant at SymmetriCom's request for such assistant. NON-DISCLOSURE OF INFORMATION For the purposes of this Agreement, the term "Confidential Information" refers to information and/or materials which 1. SymmetriCom designates to Consultant as confidential or proprietary; 2. relate to customer lists, financial information, or other subject matter pertaining to any business of SymmetriCom; 3. are provided to SymmetriCom by any one or more of its customers and which relate to the business, business needs, requirements, and/or specification of its customers; and NON-DISCLOSURE OF INFORMATION - CONTINUED 4. directly or indirectly relate to (a) the design and/or specifications of a systems which incorporates a product that performs a complete transferal of a function (a "System"), (b) all aspects of software applicable to a System, including, without limitation, the logic and coherence thereof, (c) circuit board designs directly or indirectly related to a System, and (d) logic designs for filters and/or circuit boards, that are directly or indirectly related to a System, including, without limitation, simulations thereof. Consultant agrees that the Confidential Information is confidential and proprietary to SymmetriCom, will be held in trust and confidence by Consultant, and will be safeguarded by Consultant to the same extent that Consultant safeguards information and material of similar confidential character in Consultant's own business which in no event will be less than the safeguards that a reasonably prudent businessperson would exercise under similar circumstances. To those ends, Consultant will take all reasonable steps to ensure that all those persons having access through Consultant to the Confidential Information will observe and perform the provisions of this paragraph. Consultant agrees it will not, in any manner, divulge, disclose, communicate, publish, reproduce, or use, directly or indirectly, any of the Confidential Information either during the term of this Agreement or at any time thereafter, except as required in the course of performing any Specific Services/Scope of Work; provided, however, that the restrictions in this paragraph will not apply to that portion of the Confidential Information which is or becomes a matter of general public knowledge other than by a breach of this Agreement by Consultant, or to information which Consultant lawfully receives from any third party under circumstances which Consultant has a reason to believe rightfully permits the independent disclosure thereof by such third party to others. Consultant agrees to promptly notify SymmetriCom of circumstances known or learned by Consultant surrounding any access, possession, or use of the Confidential Information not authorized by this Agreement. Consultant will send such notice in writing by overnight delivery service, communication charges prepaid, to the address for SymmetriCom set forth herein. EMPLOYMENT OF ASSISTANTS Consultant may, at the Consultant's own expenses, employ such assistants as Consultant deems necessary to perform the services required of Consultant by this Agreement. SymmetriCom may not control, direct, or supervise Consultant's assistants or employees in the performance of those services. Consultant assumes full and sole responsibility for the payment of all compensation and expenses of these assistants and for all state and federal income tax, unemployment insurance, Social Security, disability insurance and other applicable withholdings. PLACE OF WORK Consultant shall perform the services required by this Agreement at any place or location and at such times as Consultant shall determine. COMPENSATION In consideration for the services to be performed by Consultant, SymmetriCom agrees to pay Consultant as stated below or as stated on attached Purchase Order. $2,500 / day ---------------------------------------------------------------------------- INVOICES Consultant shall submit invoices for all services rendered. EXPENSES Consultant shall be responsible for all costs and expenses incident to the performance of services for SymmetriCom, including but not limited to, all costs of equipment provided by Consultant, all fees, fines, licenses, bonds or taxes required of or imposed against Consultant and all other of Consultant's costs of doing business. SymmetriCom shall be responsible for no expenses incurred by Consultant in performing services for SymmetriCom. OBLIGATIONS OF CONSULTANT INDEMNIFICATION OF LIABILITY Consultant warrants that it has the right to enter into and to fully meet all of the requirements of this Agreement and to do so without conflicts or liability to others. Consultant warrants that services performed is the sole product of Consultant's own effort and that in performing such services Consultant will not infringe upon nor violate any patent, copyright, trademark, trade secret, nor other property rights of a third party. Consultant has obligations to SymmetriCom and prior obligations to prior employment or consultation engagements to protect all information and content of trade secrets existing between the Consultant and these entities. Therefore: 1. Consultant will obtain releases to consult with SymmetriCom from any employers in the same industry in which Consultant is a Consultant for SymmetriCom. These will be original copy statements and be labeled Attachment B. 2. Consultant will obtain releases from any consulting engagements that Consultant has completed in the prior three (3) years which are directly competitive or the same equipment or software design technology as that of SymmetriCom. These will be original copy statements and be labeled Attachment C. Consulting Agreement . Page 2 INDEMNIFICATION OF LIABILITY - CONTINUED Consultant shall indemnify and hold SymmetriCom harmless against any and all liability imposed or claimed, including attorney's fees and other legal expenses, arising directly or indirectly from any act or failure of Consultant to Consultant's assistants, employees or agents, including all claims relating to the injury or death of any person or damage to any property. Consultant agrees to maintain a policy of insurance to cover any such claims. TOOLS AND INSTRUMENTALITIES Consultant will supply all tools and instrumentalities required to perform the services under this Agreement. Consultant is not required to purchase or rent any tools, equipment or services from SymmetriCom. WORKERS' COMPENSATION Contractor agrees to provide workers' compensation insurance for Consultant's employees and agents and agrees to hold harmless and indemnify SymmetriCom for any and all claims arising out of any injury, disability, or death of any of Consultant's employees or agents. ASSIGNMENT Neither this Agreement nor any duties or obligations under this Agreement may be assigned by Consultant without the prior consent of SymmetriCom. STATE AND FEDERAL TAXES As Consultant is not SymmetriCom's employee, Consultant is responsible for paying all required state and federal taxes. OBLIGATIONS OF SYMMETRICOM COOPERATION OF SYMMETRICOM SymmetriCom agrees to comply with all reasonable requests of Consultant and provide access to all documents reasonably necessary to the performance of Consultant's duties under this Agreement. ASSIGNMENT Neither this Agreement nor any duties or obligations under this Agreement may be assigned by SymmetriCom without the prior written consent of Consultant. TERMINATION OF AGREEMENT TERMINATION FOR CONVENIENCE Either party may terminate this agreement for its convenience upon thirty (30) days' advance written notice to the other party. TERMINATION ON OCCURRENCE OF STATED EVENTS This Agreement shall terminate automatically on the occurrence of any of the following events: 1. bankruptcy or insolvency of either party; 2. sale of the business of either party; or 3. death of either party. TERMINATION BY SYMMETRICOM FOR DEFAULT OF CONSULTANT Should Consultant default in the performance of this Agreement or materially breach any of its provisions, SymmetriCom, at SymmetriCom's option, may terminate this Agreement by giving twenty-four (24) hour written notification to Consultant. For the purposes of this section, material breach of this Agreement shall include, but not be limited to the breach by Consultant of any of its obligations in section "Services to be Performed by Consultant, Non- Disclosure of Information, and Indemnification of Liability" above. TERMINATION BY CONSULTANT FOR DEFAULT OF SYMMETRICOM Should SymmetriCom default in the performance of this Agreement or materially breach any of its provisions, Consultant, at the Consultant's option, may terminate this Agreement by giving twenty-four (24) hour written notice to SymmetriCom. TERMINATION FOR FAILURE TO MAKE AGREED-UPON PAYMENTS Should SymmetriCom fail to pay Consultant all or any part of the compensation set forth in COMPENSATION section of this Agreement on the date due, Consultant, at the Consultant's option, may terminate this Agreement if the failure is not remedied by SymmetriCom within sixty (60) days from the date payment is due. GENERAL PROVISIONS NOTICES Any notices to be given hereunder by either party to the other may be effected either by personal delivery in writing or by mail, registered or certified, postage prepared with return receipt requested. Mailed notices shall be addressed to the parties at the addresses appearing in the introductory paragraph of this Agreement, but each party may change the address by written notice in accordance with this paragraph. Notices delivered personally will be deemed communicated as of actual receipt; mailed notices will be deemed communicated as of two days after mailing. Consulting Agreement . Page 3 ENTIRE AGREEMENT OF THE PARTIES This Agreement supersedes any and all Agreements, either oral or written, between the parties hereto with respect to the rendering of services by Consultant for SymmetriCom and contains all the covenants and Agreements between the parties with respect to the rendering of such services in any manner whatsoever. Each party to this Agreement acknowledges that no representations, inducements, promises, or agreements, orally or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not embodied herein, and that no other agreement, statement, or promise not contained in this Agreement shall be valid or binding. Any modification of this Agreement will be effective only if it is in writing signed by the party to be charged. PARTIAL INVALIDITY If any provision in this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remaining provisions will nevertheless continue in full force without being impaired or invalidated in any way. ATTORNEYS' FEES If any action at law or in equity, including an action for declaratory relief, is brought to enforce or interpret the provisions of this Agreement, the prevailing party will be entitled to reasonable attorneys' fees, which may be set by the court in the same action or in a separate action brought for that purpose, in addition to any other relief to which that party may be entitled. GOVERNING LAW The validity, interpretation, and performance of this Agreement will be controlled by and construed under the laws of the State of California. The parties hereto acknowledge that each has read this Agreement, understands it, and agrees to be bound by its terms. Executed to be effective as of the day and year first above written. CONSULTANT SYMMETRICOM,INC. /s/ Roger A. Strauch - ----------------------- ------------------------------------------ Company Name Name of Functional Area Manager or VP /s/ Rick Oliver - ----------------------- ------------------------------------------ Signature of Consultant Signature of Functional Area Manager or VP - ----------------------- ------------------------------------------ Business License Number Date - ----------------------- Date Return completed Agreement form with Attachments to: . SYMMETRICOM, INC. 2300 Orchard Parkway, San Jose, CA 95131 attn: Human Resources . ATTACHMENTS Attachment A (Description of work, work product, and/or services to be performed) Attachment B (Releases to consult with SymmetriCom from employers in same industry, refer to Indemnification of Liabilities) Attachment C (Releases from previous consulting engagements; refer to Indemnification of Liabilities) Approved Purchase Order to be attached Consulting Agreement . Page 4 EX-10.8 4 CONSULTING AGREEMENT BETWEEN THE CO & W. RASDAL EXHIBIT 10.8 CONSULTING AGREEMENT This Consulting Agreement ("AGREEMENT") is made and entered into as of August 1, 1998 between: * CONSULTANT DAN RASDAL, having a principal place of business at: 10840 Mora Drive, Los Altos, CA 94024 AND * SYMMETRICOM, INC, having a principal place of business at: 2300 Orchard Parkway, San Jose, CA 95131 INDEPENDENT CONTRACTOR STATUS It is the express intention of the parties that Consultant is an independent contractor and not an employee, agent, joint venturer or partner of SymmetriCom. It is acknowledged that Consultant is on the Board of Directors of SymmetriCom. Nothing in the agreement shall be interpreted or construed as creating or establishing the relationship of employer and employee between Consultant and SymmetriCom or any employee or agent of SymmetriCom. Both parties acknowledge that Consultant is not an employee for state or federal tax purposes. Consultant shall retain the right to perform services for others during the term of this agreement. SERVICES TO BE PERFORMED BY CONSULTANT SPECIFIC SERVICES/SCOPE OF WORK Consultant will provide to SymmetriCom assistance on various projects as approved by the Chairman of the Board. METHOD OF PERFORMING SERVICES Consultant will determine the method, details, and means of performing the above-described services. SymmetriCom shall have no right to, and shall not, control the manner or determine the method of accomplishing Consultant's services. PROPERTY RIGHTS With respect to designs of any type or description, drawings, specifications, software development, and/or other copyrightable subject matter developed by Consultant pursuant to any Specific Services, Consultant agrees that the relationship of Consultant and SymmetriCom is and will be considered a "work made for hire". As such, Consultant agrees that SymmetriCom will be deemed to be the author and copyright owner of all copyrightable subject matter created by Consultant pursuant to any Specific Services. Consultant will promptly make full written disclosure to SymmetriCom, will hold in trust for the sole right and benefit of SymmetriCom, and will assign to SymmetriCom all of Consultant's right, title, and interest in and to any and all inventions, original works of authorship, developments, improvements, and/or trade secrets which Consultant conceives, develops, or reduces to practice, or causes to be conceived, developed, or reduced to practice, in connection with any Specific Services. Consultant will assist SymmetriCom to obtain United States or foreign letters patent, copyrights, or mask work rights covering inventions, original works or authorship, developments, improvements, and/or trade secrets which are assigned hereunder to SymmetriCom, and SymmetriCom will compensate Consultant at a reasonable rate for time actually spent by Consultant at SymmetriCom's request for such assistant. NON-DISCLOSURE OF INFORMATION For the purposes of this Agreement, the term "Confidential Information" refers to information and/or materials which 1. SymmetriCom designates to Consultant as confidential or proprietary; 2. relate to customer lists, financial information, or other subject matter pertaining to any business of SymmetriCom; 3. are provided to SymmetriCom by any one or more of its customers and which relate to the business, business needs, requirements, and/or specification of its customers; and 4. directly or indirectly relate to (a) the design and/or specifications of a systems which incorporates a product that performs a complete transferal of a function (a "System"), (b) all aspects of software applicable to a System, including, without limitation, the logic and coherence thereof, (c) circuit board designs directly or indirectly related to a System, and (d) logic designs for filters and/or circuit boards, that are directly or indirectly related to a System, including, without limitation, simulations thereof. Consultant agrees that the Confidential Information is confidential and proprietary to SymmetriCom, will be held in trust and confidence by Consultant, and will be safeguarded by Consultant to the same extent that Consultant safeguards information and material of similar confidential character in Consultant's own business which in no event will be less than the safeguards that a reasonably prudent businessperson would exercise under similar circumstances. To those ends, Consultant will take all reasonable steps to ensure that all those persons having access through Consultant to the Confidential Information will observe and perform the provisions of this paragraph. Consultant agrees it will not, in any manner, divulge, disclose, communicate, publish, reproduce, or use, directly or indirectly, any of the Confidential Information either during the term of this Agreement or at any time thereafter, except as required in the course of performing any Specific Services/Scope of Work; provided, however, that the restrictions in this paragraph will not apply to that portion of the Confidential Information which is or becomes a matter of general public knowledge other than by a breach of this Agreement by Consultant, or to information which Consultant lawfully receives from any third party under circumstances which Consultant has a reason to believe rightfully permits the independent disclosure thereof by such third party to others. Consultant agrees to promptly notify SymmetriCom of circumstances known or learned by Consultant surrounding any access, possession, or use of the Confidential Information not authorized by this Agreement. Consultant will send such notice in writing by overnight delivery service, communication charges prepaid, to the address for SymmetriCom set forth herein. PLACE OF WORK Consultant shall perform the services required by this Agreement at any place or location and at such times as Consultant shall determine. COMPENSATION In consideration for the services to be performed by Consultant, SymmetriCom agrees to pay Consultant as stated below or as stated on attached Purchase Order. $10,416.67 per month as a retainer for services, plus an additional expense amount of $881.30. This consultant agreement is expected to last until July 1999. Additional expenses incurred for such items as air transportation, taxi and hotels should be billed at the actual cost by presenting an invoice or having the service direct bill to SymmetriCom. EXPENSES Consultant shall be responsible for costs and expenses incident to the performance of services for SymmetriCom, including but not limited to costs of equipment provided by Consultant, all fees, fines, licenses, bonds or taxes required of or imposed against Consultant and all other of Consultant's costs of doing business. SymmetriCom shall be responsible for no expenses incurred by Consultant in performing services for SymmetriCom except as noted above under Compensation. OBLIGATIONS OF CONSULTANT INDEMNIFICATION OF LIABILITY Consultant warrants that it has the right to enter into and to fully meet all of the requirements of this Agreement and to do so without conflicts or liability to others. Consultant warrants that services performed is the sole product of Consultant's own effort and that in performing such services Consultant will not infringe upon nor violate any patent, copyright, trademark, trade secret, nor other property rights of a third party. Consultant has obligations to SymmetriCom and prior obligations to prior employment or consultation engagements to protect all information and content of trade secrets existing between the Consultant and these entities. Therefore: 1. Consultant will obtain releases to consult with SymmetriCom from any employers in the same industry in which Consultant is a Consultant for SymmetriCom. These will be original copy statements and be labeled Attachment B. 2. Consultant will obtain releases from any consulting engagements that Consultant has completed in the prior three (3) years which are directly competitive or the same equipment or software design technology as that of SymmetriCom. These will be original copy statements and be labeled Attachment C. Consulting Agreement * Page 2 TOOLS AND INSTRUMENTALITIES Consultant will supply all tools and instrumentalities required to perform the services under this Agreement. Consultant is not required to purchase or rent any tools, equipment or services from SymmetriCom. WORKERS' COMPENSATION Consultant agrees to hold harmless and indemnify SymmetriCom for any and all claims arising out of any injury, disability, or death of Consultant. ASSIGNMENT Neither this Agreement nor any duties or obligations under this Agreement may be assigned by Consultant without the prior consent of SymmetriCom. STATE AND FEDERAL TAXES As Consultant is not SymmetriCom's employee, Consultant is responsible for paying all required state and federal taxes. OBLIGATIONS OF SYMMETRICOM COOPERATION OF SYMMETRICOM SymmetriCom agrees to comply with all reasonable requests of Consultant and provide access to all documents reasonably necessary to the performance of Consultant's duties under this Agreement. ASSIGNMENT Neither this Agreement nor any duties or obligations under this Agreement may be assigned by SymmetriCom without the prior written consent of Consultant. TERMINATION OF AGREEMENT TERMINATION FOR CONVENIENCE Either party may terminate this agreement for its convenience upon thirty (30) days' advance written notice to the other party. TERMINATION ON OCCURRENCE OF STATED EVENTS This Agreement shall terminate automatically on the occurrence of any of the following events: 1. bankruptcy or insolvency of either party; 2. sale of the business of either party; or 3. death of either party. TERMINATION BY SYMMETRICOM FOR DEFAULT OF CONSULTANT Should Consultant default in the performance of this Agreement or materially breach any of its provisions, SymmetriCom, at SymmetriCom's option, may terminate this Agreement by giving twenty-four (24) hour written notification to Consultant. For the purposes of this section, material breach of this Agreement shall include, but not be limited to the breach by Consultant of any of its obligations in section "Services to be Performed by Consultant, Non- Disclosure of Information, and Indemnification of Liability" above. TERMINATION BY CONSULTANT FOR DEFAULT OF SYMMETRICOM Should SymmetriCom default in the performance of this Agreement or materially breach any of its provisions, Consultant, at the Consultant's option, may terminate this Agreement by giving twenty-four (24) hour written notice to SymmetriCom. TERMINATION FOR FAILURE TO MAKE AGREED-UPON PAYMENTS Should SymmetriCom fail to pay Consultant all or any part of the compensation set forth in COMPENSATION section of this Agreement on the date due, Consultant, at the Consultant's option, may terminate this Agreement if the failure is not remedied by SymmetriCom within sixty (60) days from the date payment is due. GENERAL PROVISIONS NOTICES Any notices to be given hereunder by either party to the other may be effected either by personal delivery in writing or by mail, registered or certified, postage prepared with return receipt requested. Mailed notices shall be addressed to the parties at the addresses appearing in the introductory paragraph of this Agreement, but each party may change the address by written notice Consulting Agreement * Page 3 in accordance with this paragraph. Notices delivered personally will be deemed communicated as of actual receipt; mailed notices will be deemed communicated as of two days after mailing. ENTIRE AGREEMENT OF THE PARTIES This Agreement supersedes any and all Agreements, either oral or written, between the parties hereto with respect to the rendering of services by Consultant for SymmetriCom and contains all the covenants and Agreements between the parties with respect to the rendering of such services in any manner whatsoever. Each party to this Agreement acknowledges that no representations, inducements, promises, or agreements, orally or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not embodied herein, and that no other agreement, statement, or promise not contained in this Agreement shall be valid or binding. Any modification of this Agreement will be effective only if it is in writing signed by the party to be charged. PARTIAL INVALIDITY If any provision in this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remaining provisions will nevertheless continue in full force without being impaired or invalidated in any way. ATTORNEYS' FEES If any action at law or in equity, including an action for declamatory relief, is brought to enforce or interpret the provisions of this Agreement, the prevailing party will be entitled to reasonable attorneys' fees, which may be set by the court in the same action or in a separate action brought for that purpose, in addition to any other relief to which that party may be entitled. GOVERNING LAW The validity, interpretation, and performance of this Agreement will be controlled by and construed under the laws of the State of California. The parties hereto acknowledge that each has read this Agreement, understands it, and agrees to be bound by its terms. Executed to be effective as of the day and year first above written. CONSULTANT SYMMETRICOM,INC. Rick Oliver - ------------------------------- ------------------------------- Company Name Name of Chairman of the Board /s/ Dan Rasdal /s/ Rick Oliver - ------------------------------- ------------------------------- Signature of Consultant Signature of Chairman of the Board - ------------------------------- ------------------------------- Business License Number Date 8-26-98 - ------------------------------- Date RETURN COMPLETED AGREEMENT FORM WITH ATTACHMENTS TO: * SYMMETRICOM, INC. 2300 Orchard Parkway, San Jose, CA 95131 attn: Human Resources * ATTACHMENTS Attachment A not necessary Attachment B (Releases to consult with SymmetriCom from employers in same industry, refer to Indemnification of Liabilities) - none provided as of August 1, 1998 Attachment C (Releases from previous consulting engagements; refer to Indemnification of Liabilities) - not necessary Approved Purchase Order to be attached EX-10.11 5 4TH AMENDMENT TO REVOLVING CREDIT LOAN EXHIBIT 10.11 FOURTH AMENDMENT TO REVOLVING CREDIT LOAN AGREEMENT This AMENDMENT, dated the 26th day of June, 1998 between SymmetriCom, INC., a California corporation, (herein referred to as the "Borrower") and COMERICA BANK-California (herein referred to as the "Bank"). WITNESSETH: WHEREAS, the Bank and the Borrower on December 1, 1993 entered into a certain Revolving Credit Loan Agreement (the "Agreement"), a certain Revolving Credit Master Note (the "Revolving Credit Note"), a certain Guaranty, a certain Corporate Resolution Authorizing Execution of Guaranty, a certain Loan Disbursement Order, and a certain Advance & Repayment Agreement (collectively the "Loan Documents"); and WHEREAS, the Borrower desires to borrow up to Seven Million and 00/100 Dollars ($7,000,000.00) from the Bank from time to time for the working capital needs of the Borrower; and WHEREAS, the modifications to the Agreement and to the Revolving Credit Note contemplated hereby are in the best interest of, and will mutually benefit, the parties hereto; and NOW, THEREFORE, in consideration of the premises and the mutual promises herein contained, the Borrower and the Bank agree to amend the Agreement in the manner and to the extent hereinafter set forth: 1. Replace Section 6.5 with the following: "Maintain Tangible Net Worth. On a consolidated basis, maintain a Tangible Net Worth of not less than the amount specified during the period specified below: (a) $75,000,000 from the date of this Amendment and to increase on June 30, 1999 by 70% of Borrower's fiscal 1998 net profit after tax. 2. Replace Section 6.8 with the following: "Maintain Profitability. On a consolidated basis, for the fiscal quarter ending March 31, 1999, maintain Net Income greater than ZERO DOLLARS ($0). After the fiscal quarter ending March 31, 1999, Borrower shall maintain Net Income greater than zero dollars ($0) at least every second quarter. IN WITNESS WHEREOF, the parties hereto have caused this Fourth Amendment to the Agreement and the Revolving Credit Note to be executed and delivered by their duly authorized officers on the day and year first written above. By: /s/ ROGER A. STRAUCH By: /s/ THOMAS W. STEIPP - -------------------------- -------------------------- Roger A. Strauch Thomas W. Steipp Its: President and COO, Its: Chief Executive Officer Telecom Solutions COMERICA BANK-CALIFORNIA By: /s/ MARK HILLHOUSE -------------------------- Mark Hillhouse Its: Corporate Banking Officer EX-10.12 6 1ST AMENDED & RESTATED REVOLVING CREDIT LOAN EXHIBIT 10.12 FIRST AMENDED AND RESTATED REVOLVING CREDIT LOAN AGREEMENT THIS FIRST AMENDED AND RESTATED REVOLVING CREDIT LOAN AGREEMENT made and delivered this 29th day of June, 1998, by and between SYMMETRICOM, INC., a California corporation (herein referred to as "Borrower") and COMERICA BANK - California (herein referred to as "Bank"). RECITALS -------- A. Borrower and Bank have previously entered into that certain Revolving Credit Loan Agreement dated December 1, 1993 (as amended, the "Prior Agreement"). As of June 29, 1998, there is no balance outstanding in connection with the Prior Agreement. B. Borrower desires to borrow an amount not to exceed Seven Million Dollars ($7,000,000) in the form of a revolving credit loan from Bank from time to time for the working capital needs of Borrower, which shall replace the loan under the Prior Agreement. C. Bank is willing to supply such financing subject to the terms and conditions set forth in this Agreement and the documents executed in connection herewith. AGREEMENT --------- NOW, THEREFORE, in consideration of the premises and the mutual promises herein contained, Borrower and the Bank agree as set forth below. 1. Definitions: Accounting Terms: Construction. ------------------------------------------- 1.1 Defined Terms. As used in this Agreement, the following terms shall ------------- have the following respective meanings: "Accounts," "Chattel Paper," "Documents," "Equipment," "Fixtures," "General Intangibles," "Goods," "Instruments" and "Inventory" shall have the meanings assigned to them in the UCC on the date of this Agreement. "Accounts Receivable" shall mean and include all Accounts, Chattel Paper and General Intangibles (including, but not limited to Tax Refunds, trade names, trade styles and goodwill, trade marks, copyrights and patents, and applications therefor, trade and proprietary secrets, formulae, designs, blueprints and plans, customer lists, literary rights, licenses and permits, receivables, insurance proceeds, beneficial interests in trusts and minute books and other books and records) now owned or hereafter acquired by Borrower. 1 "Affiliate" shall mean, when used with respect to any person, any other person which, directly or indirectly, controls or is controlled by or is under common control with such person. For purposes of this definition, "control" (including the correlative meanings of the terms "controlled by" and "under common control with"), with respect to any person, shall mean possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person, whether through the ownership of voting securities or by contract or otherwise. "Agreement" shall mean this First Amended and Restated Revolving Credit Loan Agreement, as amended from time to time hereafter. "Bank" shall mean Comerica Bank-California, a California banking corporation. "Bankruptcy Code" shall mean Title 11 of the United States Code, as amended, or any successor act or code. "Base Rate" shall mean that annual rate of interest designated by Bank as its base rate, which rate may not be the lowest rate of interest charged by Bank to any of its customers, and which rate is changed by Bank from time to time. "Borrower" shall mean SYMMETRICOM, INC., a California corporation. "Borrower's Telephone and Facsimile Authorization" shall mean a document in the form and content of Exhibit B hereto authorizing telephone or facsimile --------- notice of borrowing. "Business Day" shall mean a day on which the Bank is open to carry on its normal commercial lending business. "Consolidated" or "consolidated" shall mean, when used with reference to any financial term in this Agreement, the aggregate for two or more persons of the amounts signified by such term for all such persons determined on a consolidated basis in accordance with GAAP. Unless otherwise specified herein, references to "consolidated" financial statements or data of Borrower includes consolidation with its Subsidiaries in accordance with GAAP. "Contract Rate" shall mean, as of any applicable date of determination, the interest rate determined in accordance with Section 2.4 of this Agreement. "Current Assets" shall mean, as of any applicable date of determination, all cash, non-affiliated customer receivables, United States government securities, claims against the United States government, and inventories. "Current Liabilities" shall mean, as of any applicable date of determination, (i) all liabilities of a person that should be classified as current in accordance with GAAP, plus (ii) the principal outstanding balance of the Note; 2 plus (iii) to the extent not otherwise included, all liabilities of Borrower to any of its Affiliates whether or not classified as current in accordance with GAAP. "Debt" shall mean, as of any applicable date of determination, all items of indebtedness, obligation or liability of a person, whether matured or unmatured, liquidated or unliquidated, direct or indirect, absolute or contingent, joint or several, that should be classified as liabilities in accordance with GAAP. "Default" shall mean a condition or event which, with the giving of notice or the passage of time, or both, would become an Event of Default. "Disbursement Date" shall mean each date upon which Bank makes a loan to Borrower under Section 2.1 of this Agreement. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, or any successor act or code. "Event of Default" shall mean any of those conditions or events listed in Section 7.1 of this Agreement. "Financial Statements" shall mean all those balance sheets, earnings statements and other financial data (whether of Borrower, any of its Subsidiaries, or otherwise) which have been furnished to Bank for the purposes of, or in connection with, this Agreement and the transactions contemplated hereby. "GAAP" shall mean, as of any applicable date of determination, generally accepted accounting principles consistently applied. "Guarantor" or "Guarantors" shall mean, either individually or collectively, as the case may be, Telecom Solutions Puerto Rico, Inc., Linfinity Microelectronics, Inc. and/or any other Person signing a guaranty in favor of Bank. "Guaranty" or "Guaranties" shall mean, individually or collectively, as the case may be, one or more guaranties in the form of Exhibits E and G ---------------- hereto, executed by Guarantors, pursuant to those certain corporate resolutions in the form of Exhibits F and H hereto. ---------------- "Indebtedness" shall mean all loans, advances, indebtedness, obligations and liabilities of Borrower to Bank under this Agreement, together with all other indebtedness, obligations (including, but not limited to, letters of credit of any type) and liabilities whatsoever of Borrower to Bank, whether matured or unmatured, liquidated or unliquidated, direct or indirect, absolute or contingent, joint or several, due or to become due, now existing or hereafter arising. "Legal Rate" shall mean the maximum interest rate permitted to be paid by Borrower or received by Bank with respect to the Indebtedness represented by the Revolving Credit Note under applicable law. 3 "Loan" shall mean the Revolving Loans. "Net Income" shall mean the net income (or loss) of a person for any period determined in accordance with GAAP but excluding in any event: (i) any gains or losses on the sale or other disposition, not in the ordinary course of business, of investments or fixed or capital assets, and any taxes on the excluded gains and any tax deductions or credits on account on any excluded losses; and (ii) in the case of Borrower, net earnings of any Person in which Borrower has an ownership interest, unless such net earnings shall have actually been received by Borrower in the form of cash distributions. "PBGC" shall mean the Pension Benefit Guaranty Corporation or any person succeeding to the present powers and functions of the Pension Benefit Guaranty Corporation. "Permitted Liens" shall mean: (a) Liens and encumbrances in favor of Bank in the future if granted; (b) Liens for taxes, assessments or other governmental charges incurred in the ordinary course of business and for which no interest, late charge or penalty is attaching or which is being contested in good faith by appropriate proceedings and, if requested by Bank, bonded in an amount and manner satisfactory to Bank; (c) Liens, not delinquent, created by statute in connection with worker's compensation, unemployment insurance, social security and similar statutory obligations; (d) Liens of mechanics, materialmen, carriers, warehousemen or other like statutory or common law liens securing obligations incurred in good faith in the ordinary course of business that are not yet due and payable; (e) Encumbrances consisting of existing or future zoning restrictions, existing recorded rights-of-way, existing recorded easements, existing recorded private restrictions or existing or future public restrictions on the use of real property, none of which materially impairs the use of such property in the operation of the business for which it is used and none of which is violated in any material respect by any existing or proposed structure or land use; and (f) Existing liens described on Schedule 4.5 attached to this Agreement. 4 "Person" or "person" shall mean any individual, corporation, partnership, joint venture, association, trust, unincorporated association, joint stock company, government, municipality, political subdivision or agency, or other entity. "Quick Assets" shall mean, as of any applicable date of determination, all cash, nonAaffiliated customer receivables, United States government securities and claims against the United States government. "Revolving Credit Commitment Amount" shall mean, as of any applicable date of determination, Seven Million and 00/100 Dollars ($7,000,000). "Revolving Credit Note" shall mean a promissory note conforming to Section 2.3 of this Agreement and in the form and content of Exhibit A to this Agreement, as amended from time to time hereafter. "Revolving Loan" shall mean an advance made by Bank to Borrower under Section 2.1 of this Agreement on a Disbursement Date. "Subsidiary" shall mean any corporation (whether now existing or hereafter organized or acquired) in which more than fifty percent (50%) of the outstanding securities having ordinary voting power for the election of directors, as of any applicable date of determination, shall be owned directly, or indirectly through one or more Subsidiaries, by Borrower. "Tangible Net Worth" shall mean, as of any applicable date of determination, the excess of (i) the net book value of all assets of a person (other than patents, patent rights, trademarks, trade names, franchises, copyrights, licenses, goodwill, and similar intangible assets) after all appropriate deductions in accordance with GAAP (including, without limitation, reserves for doubtful receivables, obsolescence, depreciation and amortization), over (ii) all Debt of such person. "Tax Refunds" shall mean refunds or claims for refunds of any taxes at any time paid by Borrower to the United States of America or any state, city, county or other governmental entity. "Termination Date" shall mean May 1, 2000 (or such earlier date on which Borrower shall permanently terminate Bank's commitment under Section 2.8.1 of this Agreement). "UCC" shall mean Uniform Commercial Code of the State of California (approved June 8, 1968) as amended. 1.2 Accounting Terms. All accounting terms not specifically defined in this ---------------- Agreement shall be construed in accordance with GAAP. 1.3 Singular and Plural. Where the context herein requires, the singular ------------------- number shall be deemed to include the plural, the masculine gender shall include the feminine and neuter genders, and vice versa. 5 2. Commitment, Interest and Fees. ----------------------------- 2.1 Revolving Credit Commitment. Subject to the terms and conditions of this --------------------------- Agreement, Bank agrees to make loans to Borrower on a revolving basis in such amount as Borrower shall request pursuant to Section 2.2 of this Agreement at any time from the date of this Agreement until the Termination Date, up to an aggregate principal amount outstanding at any time not to exceed the Commitment Amount, provided that each Disbursement Date under this Agreement must be a Business Day and provided that the principal amount of each Revolving Loan shall be in the minimum amount of One Hundred Thousand Dollars ($100,000). 2.2 Borrowing Procedures. -------------------- 2.2.1 Notice. Borrower shall by telephone or facsimile give Bank ------ notice of Borrower's desire for a Revolving Loan no later than 1:00 p.m. San Jose, California time in order to have the date of notice by the Disbursement Date, otherwise the following Business Day shall be the Disbursement Date. Such notice shall specify the principal amount of the proposed advance for such Revolving Loan. Prior to such notice, Borrower shall have executed and delivered to Bank a Borrower's Telephone and Facsimile Authorization. 2.2.2 Bank Obligations. Bank agrees to make the Revolving Loan on the ---------------- Disbursement Date established by notice to Bank from Borrower conforming to the requirements of Section 2.2.1 by crediting the deposit account of Borrower with Bank specified in Borrower's Telephone and Facsimile Authorization in the amount of such Revolving Loan, provided, however, that Bank shall not be obligated if: (a) Any of the conditions precedent set forth in Section 3 of this Agreement shall not have been satisfied or waived by Bank in accordance with Section 9.3 of this Agreement; or (b) Such proposed Revolving Loan would cause the aggregate unpaid principal amount of the Revolving Loans outstanding under this Agreement to exceed the Commitment Amount on the Disbursement Date. 2.3 Revolving Credit Note. The Revolving Loans shall be evidenced by --------------------- the Revolving Credit Note, executed by Borrower, dated the date of this Agreement, payable to Bank on the Termination Date (unless sooner accelerated pursuant to the terms of this Agreement), and in the principal amount of the original Commitment Amount. The date and amount of each Revolving Loan made by Bank and of each repayment of principal thereon received by Bank shall be recorded by Bank in its records. The aggregate unpaid principal amount so recorded by Bank shall constitute the best evidence of the principal amount owing and unpaid on the Revolving Credit Note, provided, however, that the failure by Bank so to record any such amount or any error in so recording any such amount shall not limit or otherwise affect the obligations of Borrower under this Agreement or the Revolving Credit Note to repay the principal amount of all the Revolving Loans together with all interest accrued or accruing thereon. 6 2.4 Interest. Interest shall accrue on the principal balance of the -------- Revolving Credit Note at Bank's Base rate of interest until demand or default, at which time the Contract Rate shall be increased by three percent (3%) per annum, as provided more completely in the Revolving Credit Note. 2.5 Maximum Rate. At no time shall the Contract Rate payable on the ------------ Revolving Credit Note be deemed to exceed the Legal Rate. In the event any interest is charged or received by Bank in excess of the Legal Rate, Borrower acknowledges that any such excess interest shall be the result of an accidental and bona fide error, and such excess shall first be applied to reduce the principal then unpaid hereunder (in inverse order of their maturities if principal amounts are due in installments); second, applied to reduce any obligation for other indebtedness of Borrower to Bank; and third, any remaining excess returned to Borrower. 2.6 Fees. ---- 2.6.1 Quarterly Fee. On a quarterly basis, Borrower agrees to pay a fee of ------------- Six Thousand Two Hundred Fifty and 00/100 Dollars ($6,250), payable quarterly in arrears. 2.6.2 Amendment Fee. Borrower shall pay an amendment fee concurrently with ------------- the execution of this Agreement in the amount of Seven Thousand and Five Hundred and 00/100 Dollars ($7,500) (the "Amendment Fee"). 2.7 Basis of Computation. The amount of all interest and fees hereunder -------------------- shall be computed for the actual number of days elapsed on the basis of a year consisting of three hundred sixty (360) days. 2.8 Changes in Commitment and Prepayments. ------------------------------------- 2.8.1 Termination or Reduction in Commitment. Borrower, at any time -------------------------------------- and from time to time (except as may hereinafter be provided): upon at least five (5) Business Days' prior written notice received by Bank, may permanently terminate Bank's commitment to make Revolving Loans under this Agreement or permanently reduce the Commitment Amount by an integral multiple of One Hundred Thousand Dollars ($100,000); provided, however, that Borrower, on the effective date of such termination or reduction, shall pay to Bank, in the case of a termination, the aggregate unpaid principal amount of all Revolving Loans, or, in the case of a reduction, the amount, if any, by which the aggregate unpaid principal amount of all Revolving Loans exceeds the then reduced Commitment Amount, together in either case with all interest accrued and unpaid on the principal amounts so prepaid, but without other premium. The notice shall specify the Termination Date or the reduced Commitment Amount and the effective date of the reduction, as the case may be. Borrower may not revoke any such notice of termination or reduction without the prior written consent of Bank. After any such reduction, the quarterly fee and any other fees provided under Section 2.6. of this Agreement shall be calculated on the Commitment Amount as so reduced and the Commitment Amount may not be increased or otherwise reinstated without the express written agreement of Bank. 7 2.8.2 Mandatory Payments. Borrower shall pay to Bank the amount, if ------------------ any, by which the aggregate unpaid principal amount of all Revolving Loans from time to time exceeds the Commitment Amount, together with all interest accrued and unpaid on the amount of such excess. Such payment shall be immediately due and owing without notice or demand upon the occurrence of any such excess, provided, however, that any mandatory payment made under this Section 2.8.2 shall not reduce the Commitment Amount. 2.8.3 No Excessive Interest. The Revolving Credit Note is subject to --------------------- the condition that in no event shall the amount of interest received, charged, or agreed to be paid, including any amounts provided for in this section that may be deemed to constitute interest, exceed the amount permitted by applicable law. In the event that the obligation to pay interest imposed hereunder shall cause the amount of interest to exceed the highest rate permitted by applicable law, and if Bank shall ever require as interest an amount in excess of the permitted rate, such excess interest shall first be applied to reduce the principal then unpaid hereunder (in inverse order of their maturities if principal amounts are due in installments); second, applied to reduce any obligation for other indebtedness of Borrower to Bank; and third, any remaining excess shall be returned to Borrower. 2.9 Letter of Credit Accommodations. Each letter of credit issued for ------------------------------- Borrower shall be pursuant to the terms and conditions hereof and of a Bank standard form Letter of Credit Application and Agreement executed by Borrower. Each letter of credit shall: (i) expire not later than three hundred and sixty- five (365) days after the date of issuance; (ii) require drafts payable at sight; (iii) be in form and substance and in favor of beneficiaries satisfactory to Bank. A letter of credit issued by Bank for the account of Borrower shall be included as an outstanding advance under the Commitment Amount and shall be included in all calculations of Indebtedness from the date the letter of credit is issued and until it expires, regardless whether the letter of credit is drawn upon by the beneficiary. The aggregate undrawn or drawn but unreimbursed amount of all letters of credit outstanding at any given time shall not exceed Two Million Dollars ($2,000,000). 2.9.1 Letter of Credit Fees. Borrower shall pay Bank certain fees, --------------------- which may be increased or decreased as when Bank advises Borrower consistent with Bank's schedules of fees applicable to commercial letters of credit. 2.10 Basis of Payments. All sums payable by Borrower to Bank under this ----------------- Agreement or the other documents contemplated hereby shall be paid directly to Bank at its principal office set forth in Section 8.10 hereof in immediately available United States funds, without set off, deduction or counterclaim. In its sole discretion, Bank may charge any and all deposit or other accounts (including without limitation an account evidenced by a certificate of deposit) of Borrower with Bank for all or a part of any Indebtedness then due; provided, however, that this authorization shall not affect Borrower's obligation to pay, when due, any Indebtedness whether or not account balances are sufficient to pay amounts due. 2.11 Receipt of Payments. Any payment of the Indebtedness made by mail ------------------- will be deemed tendered and received only upon actual receipt by Bank at the address 8 designated for such payment, whether or not Bank has authorized payment by mail or any other manner, and shall not be deemed to have been made in a timely manner unless received on the date due for such payment, time being of the essence. Borrower expressly assumes all risks of loss or liability resulting from non-delivery or delay of delivery of any item of payment transmitted by mail or in any other manner. Acceptance by Bank of any payment in an amount less than the amount then due shall be deemed an acceptance on account only, and the failure to pay the entire amount then due shall be and continue to be an Event of Default, and at any time thereafter and until the entire amount then due has been paid, Bank shall be entitled to exercise any and all rights conferred upon it herein upon the occurrence of an Event of Default. Borrower waives the right to direct the application of any and all payments at any time or times hereafter received by Bank from or on behalf of Borrower. Borrower agrees that Bank shall have the continuing exclusive right to apply and to reapply any and all payments received at any time or times hereafter against the Indebtedness in such manner as Bank may deem advisable, notwithstanding any entry by Bank upon any of its books and records. Borrower expressly agrees that to the extent that Bank receives any payment or benefit and such payment or benefit, or any part thereof, is subsequently invalidated, declared to be fraudulent or preferential, set aside or is required to be repaid to a trustee, receiver, or any other party under any bankruptcy act, state or federal law, common law or equitable cause, then to the extent of such payment or benefit, the Indebtedness or part thereof intended to be satisfied shall be revived and continued in full force and effect as if such payment or benefit had not been made and, further, any such repayment by Bank, to the extent that Bank did not directly receive a corresponding cash payment, shall be added to and be additional Indebtedness payable upon demand by Bank. 3. Conditions Precedent to Obligations of Bank. ------------------------------------------- 3.1 Conditions to First Disbursement. The obligations of Bank under this -------------------------------- Agreement are subject to the occurrence, prior to or simultaneously with the Disbursement Date first occurring, of each of the conditions set forth herein. 3.1.1 Documents Executed, Delivered and Filed. Borrower shall have --------------------------------------- executed (or caused to be executed) and delivered to Bank and, as appropriate, there shall have been filed or recorded with such filing or recording offices as Bank shall deem appropriate, including, without limitation, the following: (a) The Revolving Credit Note; (b) The Corporation Resolutions and Incumbency Certification - Authority to Procure Loans; (c) Borrower's Authorization for the Revolving Credit Note; and (d) The Guaranties signed by Guarantors, together with corporate resolutions authorizing the execution of such Guaranties. 3.1.2 Certified Resolutions. Borrower shall have furnished to Bank a --------------------- copy of resolutions of the Board of Directors of Borrower authorizing the execution, 9 delivery and performance of this Agreement, the borrowing hereunder, the Revolving Credit Note and any other documents contemplated by this Agreement, which shall have been certified by the Secretary or Assistant Secretary of Borrower as of the Disbursement Date first occurring as being complete, accurate and in effect. 3.1.3 Certificate of Incumbency. Borrower shall have furnished to ------------------------- Bank a certificate of the Secretary or Assistant Secretary of Borrower, certified as of the Disbursement Date first occurring, as to the incumbency and signatures of the officers of Borrower signing this Agreement, the Revolving Credit Note and any documents contemplated or delivered under this Agreement. 4.1.4 Payment of Amendment Fee. Borrower shall have paid the ------------------------ Amendment Fee to Bank. 3.2 Conditions to All Disbursements. The obligations of Bank to make any ------------------------------- Revolving Loan on any Disbursement Date, including, but not limited to, the Disbursement Date first occurring, are subject to the occurrence, prior to or on the Disbursement Date related to such Revolving Loan, of each of the following conditions set forth in this Section 3.2. 3.2.1 Bank Satisfaction. Bank shall not know or have any reason to ----------------- believe that, as of such Disbursement Date: (a) Any Default or Event of Default has occurred and is continuing; (b) Any warranty or representation set forth in Section 4 of this Agreement shall not be true and correct; or (c) Any provision of law, any order of any court or other agency of government on any regulation, rule or interpretation thereof shall have had any material adverse effect on the validity or enforceability of this Agreement, the Revolving Credit Note, or other documents contemplated hereby. 4. Warranties and Representations. ------------------------------ On a continuing basis from the date of this Agreement until the later of the Termination Date or when the Indebtedness is paid in full and Borrower has performed all of its other obligations hereunder, Borrower represents and warrants to Bank as set forth herein. 4.1 Corporate Existence and Power. (a) Borrower and each of its ----------------------------- Subsidiaries is a duly organized, validly existing and in good standing under the laws of the State of California; (b) Borrower and its Subsidiaries each has the power and authority to own its properties and assets and to carry out its business as now being conducted and is qualified to do business and in good standing in every jurisdiction wherein such qualification is necessary; and (c) Borrower has the power and authority to execute, deliver and perform this Agreement, to borrow money in accordance with 10 its terms, to execute, deliver and perform the Revolving Credit Note, and other documents contemplated hereby, and to do any and all other things required of it hereunder. 4.2 Authorization and Approvals. The execution, delivery and performance --------------------------- of this Agreement, the borrowings hereunder and the execution, delivery and performance of the Revolving Credit Note, and other documents contemplated hereby (a) have been duly authorized by all requisite corporate action of Borrower, (b) do not require registration with or consent or approval of, or other action by, any federal, state or other governmental authority or regulatory body, or, if such registration, consent or approval is required, the same has been obtained and disclosed in writing to Bank, (c) will not violate any provision of law, any order of any court or other agency of government, the Articles of Incorporation or Bylaws of Borrower, any provision of any indenture, note, agreement or other instrument to which Borrower is a party, or by which it or any of its properties or assets are bound, (d) will not be in conflict with, result in a breach of or constitute (with or without notice or passage of time) a default under any such indenture, note, agreement or other instrument, and (e) will not result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of Borrower other than in favor of Bank in the future if granted. 4.3 Valid and Binding Agreement. This Agreement is, and the Revolving --------------------------- Credit Note, and all other documents contemplated hereby will be, when delivered, valid and binding obligations of Borrower. 4.4 Actions, Suits or Proceedings. There are no actions, suits or ----------------------------- proceedings, at law or in equity, and no proceedings before any arbitrator or by or before any governmental commission, board, bureau, or other administrative agency, pending, or, to the best knowledge of Borrower, threatened against or affecting Borrower, or any of its Subsidiaries or any properties or rights of Borrower, or any of its Subsidiaries, which, if adversely determined, could materially impair the right of Borrower, or any of its Subsidiaries to carry on business substantially as now conducted or could have a material adverse effect upon the financial condition of Borrower, or any of its Subsidiaries. 4.5 No Liens, Pledges, Mortgages or Security Interests. Except for -------------------------------------------------- Permitted Liens, none of Borrower's, or its Subsidiaries' assets and properties, are subject to any mortgage, pledge, lien, security interest or other encumbrance of any kind or character. 4.6 Accounting Principles. All consolidated and consolidating balance --------------------- sheets, earnings statements and other financial data furnished to Bank for the purposes of, or in connection with, this Agreement and the transactions contemplated by this Agreement, have been prepared in accordance with GAAP, and do or will fairly present the financial condition of Borrower, and its Subsidiaries, as of the dates, and the results of their operations for the periods, for which the same are furnished to Bank. Without limiting the generality of the foregoing, the Financial Statements have been prepared in accordance with GAAP (except as disclosed therein) and fairly present the financial condition of Borrower, and its Subsidiaries as of the dates, and the results of its operations for the fiscal periods, for which the same are furnished to Bank. Borrower has no material contingent obligations, liabilities for taxes, long-term leases or unusual 11 forward or long-term commitments not disclosed by, or reserved against in, the Financial Statements. 4.7 Financial Condition. Borrower and its Subsidiaries is each solvent, ------------------- able to pay its debts as they mature, has capital sufficient to carry on its business and has assets the fair market value of which exceed its liabilities, and Borrower and its Subsidiaries will not be rendered insolvent, under- capitalized or unable to pay maturing debts by the execution or performance of this Agreement, or the other documents contemplated hereby. There has been no material adverse change in the business, properties or condition (financial or otherwise) of Borrower, or any of its Subsidiaries since the date of the latest of the Financial Statements. 4.8 Conditions Precedent. As of each Disbursement Date and the Termination -------------------- Date, all appropriate conditions precedent referred to in Section 3 hereof shall have been satisfied or waived in writing by Bank. 4.9 Taxes. Borrower, and its Subsidiaries has each filed by the due date ----- therefor all federal, state and local tax returns and other reports it is required by law to file, has paid or caused to be paid all taxes, assessments and other governmental charges that are shown to be due and payable under such returns, and has made adequate provision for the payment of such taxes, assessments or other governmental charges which have accrued but are not yet payable. Borrower has no knowledge of any deficiency or assessment in connection with any taxes, assessments or other governmental charges not adequately disclosed in the Financial Statements. 4.10 Compliance with Laws. Borrower, and its Subsidiaries has each -------------------- complied with all applicable laws, to the extent that failure to comply would materially interfere with the conduct of the business of Borrower, or any of its Subsidiaries. 4.11 Indebtedness. Except as disclosed on Schedule 4.11 attached hereto, ------------ ------------- neither Borrower, nor any of its Subsidiaries has any indebtedness for money borrowed or any direct or indirect obligations under any leases (whether or not required to be capitalized under GAAP) or any agreements of guarantee or surety except for the endorsement of negotiable instruments by Borrower, or its Subsidiaries in the ordinary course of business for deposit or collection. 4.12 Material Agreements. Except as disclosed on Schedule 4.12 attached ------------------- ------------- hereto, neither Borrower, nor any of its Subsidiaries has any material leases, contracts or commitments of any kind (including, without limitation, employment agreements, collective bargaining agreements, powers of attorney, distribution contracts, patent or trademark licenses, contracts for future purchase or delivery of goods or rendering of services, bonus, pension and retirement plans, or accrued vacation pay, insurance and welfare agreements); to the best knowledge of Borrower, all parties to such agreements have complied with the provisions of such leases, contracts or commitments; and to the best knowledge of Borrower, no party to such agreements is in default thereunder, nor has there occurred any event which with notice or the passage of time, or both, would constitute such a default. 12 4.13 Margin Stock. Neither Borrower nor any of its Subsidiaries is engaged ------------ principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, and no part of the proceeds of any loan hereunder will be used, directly or indirectly, to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock or for any other purpose which might violate the provisions of Regulation G, T, U or X of the said Board of Governors. Borrower does not own any margin stock. 4.14 Pension Funding. Neither Borrower, nor any of its Subsidiaries has --------------- incurred any accumulated funding deficiency within the meaning of ERISA or incurred any liability to the PBGC in connection with any employee benefit plan established or maintained by Borrower, or any of its Subsidiaries and no reportable event or prohibited transaction, as defined in ERISA, has occurred with respect to such plans. 4.15 Misrepresentation. No warranty or representation by Borrower ----------------- contained herein or in any certificate or other document furnished by Borrower pursuant hereto contains any untrue statement of material fact or omits to state a material fact necessary to make such warranty or representation not misleading in light of the circumstances under which it was made. There is no fact which Borrower has not disclosed to Bank in writing which materially and adversely affects nor, so far as Borrower can now foresee, is likely to prove to affect materially and adversely the business, operations, properties, prospects, profits or condition (financial or otherwise) of Borrower, or any of its Subsidiaries or ability of Borrower to perform this Agreement. 4.16 No Conflicting Agreements. Neither Borrower, nor any of its ------------------------- Subsidiaries is in default under any shareholder agreement, preferred stock agreement or any other agreement to which it is a party or by which it or any of its property is bound, the effect of which might have a material adverse effect on the business or operations of Borrower, or any of its Subsidiaries. No provision of the Certificate of Incorporation, By-Laws or preferred stock, if any, of Borrower, and no provision of any existing mortgage, indenture, note, contract, agreement, statute (including, without limitation, any applicable usury or similar law), rule, regulation, judgment, decree or order binding on Borrower or affecting the property of Borrower conflicts with, or requires any consent under, or would in any way prevent the execution, delivery or carrying out of the terms of, this Agreement and the documents contemplated hereby, and the taking of any such action will not constitute a default under, or result in the creation or imposition of, or obligation to create any lien upon the property of Borrower pursuant to the terms of any such mortgage, indenture, note, contract or agreement. 5. Affirmative Covenants. --------------------- On a continuing basis from the date of this Agreement until the later of the Termination Date or when the Indebtedness is paid in full and Borrower has performed all of its other obligations hereunder, Borrower covenants and agrees that it will perform all of the affirmative covenants set forth herein. 13 5.1 Financial and Other Information. ------------------------------- 5.1.1 Annual Financial Reports. Borrower shall furnish to Bank, in ------------------------ form and reporting basis satisfactory to Bank, not later than one hundred and twenty (120) days after the close of each fiscal year of Borrower, beginning with the fiscal year ending June 30, 1998, financial statements of Borrower on a consolidated and consolidating basis containing the balance sheet of Borrower as of the close of each such fiscal year, statements of income and retained earnings and a statement of cash flows for each such fiscal year, and such other comments and financial details as are usually included in similar reports. Such reports shall be prepared in accordance with GAAP by independent certified public accountants of recognized standing selected by Borrower and acceptable to Bank and shall contain unqualified opinions as to the fairness of the statements therein contained. 5.1.2 Quarterly Financial Statements. Borrower shall furnish to Bank ------------------------------ not later than thirty (30) days after the close of each quarter of each fiscal year of Borrower, beginning with the quarter ending June 30, 1998, financial statements on a consolidated and consolidating basis containing the balance sheet of Borrower as of the end of each such period, statements of income and retained earnings of Borrower for the portion of the fiscal year up to the end of such period, and such other comments and financial details as are usually included in similar reports. These statements shall be prepared on the same accounting basis as the statements required in Section 5.1.1 of this Agreement and shall be in such detail as Bank may reasonably require, and the accuracy of the statements shall be certified by the chief executive or financial officer of Borrower. 5.1.3 No Default Certificate. Together with each delivery of the ---------------------- financial statements required by Sections 5.1.1 and 5.1.2 of this Agreement, Borrower shall furnish to Bank a certificate of its chief executive or financial officer in form to be provided by Bank attached hereto stating that no Event of Default or Default has occurred, or if any such Event of Default or Default exists, stating the nature thereof, the period of existence thereof and what action Borrower proposes to take with respect thereto. 5.1.4 Aging Report of Accounts. In the event that average borrowings ------------------------ exceed Three Million Five Hundred Thousand Dollars ($3,500,000) in any month, Borrower shall furnish to Bank monthly by the tenth (10th) day of each month, an aging report as of the end of the preceding month of Borrower's Accounts in a form satisfactory to Bank. 5.1.5 Adverse Events. Borrower shall promptly inform Bank of the -------------- occurrence of any Default or Event of Default, or of any other occurrence which has or could reasonably be expected to have a materially adverse effect upon Borrower's or any of its Subsidiaries' business, properties, or financial condition or upon Borrower's ability to comply with its obligations hereunder. 5.1.6 Shareholder Reports. Borrower shall promptly furnish to Bank ------------------- upon becoming available a copy of all financial statements, reports, notices, proxy statements and other communications sent by Borrower or any of its Subsidiaries to 14 their stockholders, and all regular and periodic reports filed by Borrower or any of its Subsidiaries with any securities exchange, the Securities and Exchange Commission, the Corporations and Securities Bureau of the Department of Commerce of the State of California or any governmental authorities succeeding to any or all of the functions of said Commission or Bureau. 5.1.7 Management Letters. Borrower shall furnish to Bank, promptly ------------------ upon receipt thereof, copies of all management letters and other reports of substance submitted to Borrower or any of its Subsidiaries by independent certified public accountants in connection with any annual or interim audit of the books of Borrower or any of its Subsidiaries. 5.1.8 Other Information As Requested. Borrower shall promptly furnish ------------------------------ to Bank such other information regarding the operations, business affairs and financial condition of Borrower and its Subsidiaries as Bank may reasonably request from time to time and permit Bank, its employees, attorneys and agents, to inspect all of the books, records and properties of Borrower and its Subsidiaries at any reasonable time. 5.2 Insurance. Borrower shall keep its insurable properties and the --------- insurable properties of its Subsidiaries adequately insured and maintain: (a) insurance against fire and other risks customarily insured against under an "all-risk" policy and such additional risks customarily insured against by companies engaged in the same or a similar business to that of Borrower or its Subsidiaries, as the case may be; (b) necessary worker's compensation insurance; (c) public liability and product liability insurance, and (d) such other insurance as may be required by law or as may be reasonably required in writing by Bank, all of which insurance shall be in such amounts, containing such terms, in such form, for such purposes, prepaid for such time period, and written by such companies as may be satisfactory to Bank. All such policies shall contain a provision whereby they may not be canceled or amended except upon thirty (30) days' prior written notice to Bank. Borrower will promptly deliver to Bank, at Bank's request, evidence satisfactory to Bank that such insurance has been so procured and, with respect to casualty insurance, made payable to Bank. If Borrower fails to maintain satisfactory insurance as herein provided, Bank shall have the option to do so, and Borrower agrees to repay Bank upon demand, with interest at the Contract Rate, all amounts so expended by Bank. Borrower hereby appoints Bank or any employee or agent of Bank as Borrower's attorney-in-fact, which appointment is coupled with an interest and irrevocable, and authorizes Bank or any employee or agent of Bank, on behalf of Borrower, to adjust and compromise any loss under said insurance and to endorse any check or draft payable to Borrower in connection with returned or unearned premiums on said insurance or the proceeds of said insurance, and any amount so collected may be applied toward satisfaction of the Indebtedness, provided, however, that Bank shall not be required hereunder so to act. 5.3 Taxes. Borrower shall pay promptly and within the time that they can ----- be paid without late charge, penalty or interest all taxes, assessments and similar imposts and charges of every kind and nature lawfully levied, assessed or imposed upon Borrower or its Subsidiaries, and their property, except to the extent being contested in good faith and, if requested by Bank, bonded in an amount and manner satisfactory to Bank. If Borrower shall fail to pay such taxes and assessments within the time they can 15 be paid without penalty, late charge or interest Bank shall have the option to do so, and Borrower agrees to repay Bank upon demand, with interest at the Contract Rate, all amounts so expended by Bank. 5.4 Maintain Corporation and Business. Borrower shall do or cause to be --------------------------------- done all things necessary to preserve and keep in full force and effect Borrower's and each of its Subsidiaries' corporate existence, rights and franchises and comply with all applicable laws; continue to conduct and operate its and each of its Subsidiaries' business substantially as conducted and operated during the present and preceding calendar year; at all times maintain, preserve and protect all franchises and trade names and preserve all the remainder of its and its Subsidiaries' property and keep the same in good repair, working order and condition; and from time to time make, or cause to be made, all needed and proper repairs, renewals, replacements, betterments and improvements thereto so that the business carried on in connection therewith may be properly and advantageously conducted at all times. 5.5 Maintain Tangible Net Worth. Borrower shall, on a consolidated basis, --------------------------- as of the last day of each fiscal quarter commencing with the fiscal quarter ending June 30, 1998, maintain a Tangible Net Worth of not less than $75,000,000. On each subsequent fiscal quarter of Borrower, the minimum Tangible Net Worth of Borrower shall increase by seventy percent (70%) of Borrower's Net Income before taxes. There shall be no reduction in the requirement hereunder based on any losses by Borrower. 5.6 Quick Ratio. Borrower shall, on a consolidated basis, maintain a ratio ----------- of its Quick Assets to the sum of Current Liabilities and outstanding (or drawn but not reimbursed) letters of credit of not less than 1.25:1.00, measured on a quarterly basis. 5.7 Maintain Debt to Tangible Net Worth. Borrower shall, on a consolidated ----------------------------------- basis, maintain a ratio of Debt to Tangible Net Worth of not greater than 1.00:1.00, measured quarterly. 5.8 Maintain Profitability. Borrower shall, on a consolidated basis ---------------------- maintain Net Income greater than zero dollars ($0) for the quarter ending March 31, 1999. Thereafter, Borrower shall maintain Net Income greater than zero not less than every other quarter. 5.9 ERISA. (a) Borrower shall at all times meet and cause each of the ----- Subsidiaries to meet the minimum funding requirements of ERISA with respect to Borrower's and Subsidiaries' employee benefit plans subject to ERISA; (b) promptly after Borrower knows or has reason to know (i) of the occurrence of any event, which would constitute a reportable event or prohibited transaction under ERISA, or (ii) that the PBGC or Borrower has instituted or will institute proceedings to terminate an employee pension plan, deliver to Bank a certificate of the chief financial officer of Borrower setting forth details as to such event or proceedings and the action which Borrower proposes to take with respect thereto, together with a copy of any notice of such event which may be required to be filed with the PBGC; and (c) furnish to Bank (or cause the plan administrator to furnish Bank) a copy of the annual return (including all schedules and attachments) for each plan covered by ERISA, and filed with the Internal 16 Revenue Service by Borrower not later than ten (10) days after such report has been so filed. 5.10 Use of Loan Proceeds. Borrower shall use the proceeds of the Loan -------------------- hereunder only for the purposes set forth in the Recitals to this Agreement. 6. Negative Covenants. ------------------ On a continuing basis from the date of this Agreement until the later of the Termination Date or when the Indebtedness is paid in full and Borrower has performed all of its other obligations hereunder, Borrower covenants and agrees that it will not and will not permit any Subsidiary without Bank's prior written consent which shall not be unreasonably withheld, to do any of the items set forth below. 6.1 Dividends. Borrower shall not declare or pay any dividends on, or make --------- any other distribution (whether by reduction of capital or otherwise) with respect to any shares of its capital stock, except for dividends to pay income taxes. 6.2 Stock Issuance. Borrower shall not issue any additional shares of its -------------- capital stock, or any warrant, right or option relating thereto or any security convertible into any of the foregoing. 6.3 Stock Acquisition. Borrower shall not purchase, redeem, retire or ----------------- otherwise acquire any of the shares of its capital stock, or make any commitment to do so. 6.4 Liens and Encumbrances. Borrower shall not create, incur, assume or ---------------------- suffer to exist any mortgage, pledge, encumbrance, security interest, lien or charge of any kind upon any of its property or assets (including, without limitation, any charge upon property purchased or acquired under a conditional sales or other title retaining agreement or lease required to be capitalized under GAAP) whether now owned or hereafter acquired other than Permitted Liens. 6.5 Indebtedness. Borrower shall not incur, create, assume or permit to ------------ exist any indebtedness or liability on account of deposits or advances or any indebtedness or liability for borrowed money, or any other indebtedness or liability evidenced by notes, bonds, debentures or similar obligations, or any other indebtedness whatsoever, except for (a) the Indebtedness; (b) indebtedness subordinated to the prior payment in full of the Indebtedness upon terms and conditions approved in writing by Bank; (c) existing indebtedness to the extent set forth on attached Schedule 4.11; (d) trade indebtedness incurred and paid in the ordinary course of business; (e) contingent indebtedness to the extent permitted by Section 6.7 of this Agreement; (f) indebtedness secured by Permitted Liens; and (g) indebtedness related to acquisitions permitted by Section 6.11 of this Agreement. 6.6 Extension of Credit. Borrower shall not make loans, advances or ------------------- extensions of credit to any Person, except for sales on open account and otherwise in the ordinary course of business. 17 6.7 Guarantee Obligations. Borrower shall not guarantee or otherwise, --------------------- directly or indirectly, in any way be or become responsible for obligations of any other Person, whether by agreement to purchase the indebtedness of any other Person, agreement for the furnishing of funds to any other Person through the furnishing of goods, supplies or services, by way of stock purchase, capital contribution, advance or loan, for the purpose of paying or discharging (or causing the payment or discharge of) the indebtedness of any other Person, or otherwise, except for the endorsement of negotiable instruments by Borrower in the ordinary course of business for deposit or collection. 6.8 Subordinate Indebtedness. Borrower shall not subordinate any ------------------------ indebtedness due to it from a Person to indebtedness of other creditors of such Person. 6.9 Property Transfer, Merger or Lease-Back. Borrower shall not (a) sell, --------------------------------------- lease, transfer or otherwise dispose of properties and assets having an aggregate book value of more than Five Hundred Thousand Dollars ($500,000) in any fiscal year (whether in one transaction or in a series of transactions) except as to the sale of inventory in the ordinary course of business; (b) change its name, consolidate with or merge into any other corporation, permit another corporation to merge into it, acquire all or substantially all the properties or assets of any other Person, enter into any reorganization or recapitalization or reclassify its capital stock; or (c) enter into any sale- leaseback transaction. 6.10 Acquire Securities. Borrower shall not purchase or hold beneficially ------------------ any stock or other securities of, or make any investment or acquire any interest whatsoever in, any other Person, except for the common stock of the Subsidiaries owned by Borrower on the date of this Agreement and except for certificates of deposit with maturities of one year or less of United States commercial banks with capital, surplus and undivided profits in excess of One Hundred Million Dollars ($100,000,000) and direct obligations of the United States Government maturing within one year from the date of acquisition thereof. 6.11 Acquire Fixed Assets. Borrower shall not acquire or expend for, or -------------------- commit itself to acquire or expend for fixed assets by lease, purchase or otherwise in an aggregate amount that exceeds Seven Million Dollars ($7,000,000) in any fiscal year. 6.12 Pension Plan. Borrower shall not (a) allow any fact, condition or ------------ event to occur or exist with respect to any employee pension or profit sharing plans established or maintained by it which might constitute grounds for termination of any such plan or for the court appointment of a trustee to administer any such plan, or (b) permit any such plan to be the subject of termination proceedings (whether voluntary or involuntary) from which termination proceedings there may result a liability of Borrower or any of its Subsidiaries to the PBGC which, in the opinion of Bank, will have a materially adverse effect upon the operations, business, property, assets, financial condition or credit of Borrower or any of its Subsidiaries. 6.13 Misrepresentation. Borrower shall not furnish Bank with any ----------------- certificate or other document that contains any untrue statement of a material fact or omits to state a 18 material fact necessary to make such certificate or document not misleading in light of the circumstances under which it was furnished. 6.14 Margin Stock. Borrower shall not apply any of the proceeds of the ------------ Note to the purchase or carrying of any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, or any regulations, interpretations or rulings thereunder. 7. Events of Default, Enforcement: Application of Proceeds. ------------------------------------------------------- 7.1 Events of Default . The occurrence of any of the events described below ----------------- shall constitute an Event of Default hereunder. 7.1.1 Failure to Pay Monies Due. It shall be an Event of Default if ------------------------- Borrower shall fail to pay, when due, any principal or interest under the Revolving Credit Note or any taxes, insurance or other amount payable by Borrower under this Agreement or if Borrower, or any of its Subsidiaries shall fail to pay, when due, any indebtedness, obligation or liability whatsoever of Borrower, or any of its Subsidiaries to Bank. 7.1.2 Misrepresentation. It shall be an Event of Default if any ----------------- warranty or representation of Borrower in connection with or contained in this Agreement, or if any financial data or other information now or hereafter furnished to Bank by or on behalf of Borrower, shall prove to be false or misleading in any material respect. 7.1.3 Noncompliance with Bank Agreement. It shall be an Event of --------------------------------- Default if Borrower, or any of its Subsidiaries shall fail to perform in the time and manner required any of its obligations or covenants under, or shall fail to comply with any of the provisions of, this Agreement or any other agreement with Bank to which it may be a party, which does not involve the failure to make a payment when due (be it principal, interest, taxes, insurance or otherwise) and which is not cured by Borrower within thirty (30) days after the earlier of the date of notice to Borrower by Bank of such Default or the date Bank is notified, or should have been notified pursuant to Borrower's obligation under Section 5.1.8 hereof, of such Default. 7.1.4 Other Defaults. It shall be an Event of Default if Borrower, or -------------- any of its Subsidiaries shall default in the payment when due of any of its indebtedness (other than to Bank) or in the observance or performance of any term, covenant or condition in any agreement or instrument evidencing, securing or relating to such indebtedness, and such default be continued for a period sufficient to permit acceleration of the indebtedness, irrespective of whether any such default shall be forgiven or waived or there has been acceleration by the holder thereof. 7.1.5 Judgments. It shall be an Event of Default if there shall be --------- rendered against Borrower, or any of its Subsidiaries one or more judgments or decrees involving an aggregate liability of Five Hundred Thousand Dollars ($500,000) or more, which has or have become non-appealable and shall remain undischarged, unsatisfied by insurance and shall be unstayed for more than thirty (30) days, whether or not consecutive; or if a writ of attachment or garnishment against the property of Borrower, 19 any of its Subsidiaries or the Guarantor shall be issued and levied in any action claiming Five Hundred Thousand Dollars ($500,000) or more and not released or appealed and bonded in an amount and manner satisfactory to Bank within thirty (30) days after such issuance and levy. 7.1.6 Business Suspension, Bankruptcy, Etc. It shall be an Event of ------------------------------------ Default if Borrower, or any of its Subsidiaries shall voluntarily suspend transaction of its business; or if Borrower, or any of its Subsidiaries shall not pay its debts as they mature or shall make a general assignment for the benefit of creditors; or proceedings in bankruptcy, or for reorganization or liquidation of Borrower, or any of its Subsidiaries under Bankruptcy Code or under any other state or federal law for the relief of debtors shall be commenced or shall be commenced against Borrower, or any of its Subsidiaries and shall not be discharged within thirty (30) days of commencement; or a receiver, trustee or custodian shall be appointed for Borrower, or any of its Subsidiaries or for any substantial portion of their respective properties or assets. 7.1.7 Inadequate Funding or Termination of Employee Benefit Plan(s). ------------------------------------------------------------- It shall be an Event of Default if Borrower, or any of its Subsidiaries shall fail to meet its minimum funding requirements under ERISA with respect to any employee benefit plan established or maintained by it, or if any such plan shall be subject of termination proceedings (whether voluntary or involuntary) and there shall result from such termination proceedings a liability of Borrower, or any of its Subsidiaries to the PBGC which in the opinion of Bank will have a materially adverse effect upon the operations, business, property, assets, financial condition or credit of Borrower, or any of its Subsidiaries, as the case may be. 7.1.8 Occurrence of Certain Reportable Events. It shall be an Event --------------------------------------- of Default if there shall occur, with respect to any pension plan maintained by Borrower, or any of its Subsidiaries any reportable event (within the meaning of Section 4043(b) of ERISA) which Bank shall determine constitutes a ground for the termination of any such plan, and if such event continues for thirty (30) days after Bank gives written notice to Borrower, provided that termination of such plan or appointment of such trustee would, in the opinion of Bank, have a materially adverse effect upon the operations, business, property, assets, financial condition or credit of Borrower, or any of its Subsidiaries, as the case may be. 7.2 Acceleration of Indebtedness: Remedies. Upon the occurrence of an -------------------------------------- Event of Default, all Indebtedness shall be due and payable in full immediately at the option of Bank without presentation, demand, protest, notice of dishonor or other notice of any kind, all of which are hereby expressly waived. Unless all of the Indebtedness is then immediately fully paid, Bank shall have and may exercise any one or more of the rights and remedies available to Borrower under this Agreement, or under any other document contemplated hereby or for which provision is provided by law or in equity. 7.3 Application of Proceeds. All of the Indebtedness shall constitute one ----------------------- loan. Upon the occurrence of an Event of Default which is not cured within the cure period, if any, provided under Section 7.2 of this Agreement, Bank may in its sole discretion set off any proceeds against any portion of the Indebtedness. The proceeds of any sale or other disposition of the assets of Borrower authorized by this Agreement 20 shall be applied by Bank, first upon all expenses authorized by the UCC or otherwise in connection with the sale and all reasonable attorneys' fees and legal expenses incurred by Bank; the balance of the proceeds of such sale or other disposition shall be applied in the payment of the Indebtedness, first to interest, then to principal, then to other Indebtedness and the surplus, if any, shall be paid over to Borrower or to such other Person or Persons as may be entitled thereto under applicable law. Borrower shall remain liable for any deficiency, which Borrower shall pay to Bank immediately upon demand. 7.4 Cumulative Remedies. The remedies provided for herein are cumulative ------------------- to the remedies for collection of the Indebtedness as provided by law, in equity or by any document contemplated hereby. Nothing herein contained is intended, nor shall it be construed, to preclude Bank from pursuing any other remedy for the recovery of any other sum to which Bank may be or become entitled for the breach of this Agreement by Borrower. 7.5 Payable Upon Demand. To the extent that any of the Indebtedness is ------------------- payable upon demand, nothing contained in this Agreement or any document contemplated hereby shall be construed to prevent Bank from making demand, without notice and with or without reason, for immediate payment of all or any part of such Indebtedness at any time or times, whether or not a Default or an Event of Default has occurred. 8. General Terms. Bank and Borrower agree to the general terms set forth in ------------- this Section 8. 8.1 Independent Rights. No single or partial exercise of any right, power ------------------ or privilege hereunder, or any delay in the exercise thereof, shall preclude other or further exercise of the rights of the parties to this Agreement. 8.2 Covenant Independence. Each covenant in this Agreement shall be deemed --------------------- to be independent of any other covenant, and an exception or illegality in one covenant shall not create an exception or illegality in another covenant. 8.3 Waivers and Amendments. No forbearance on the part of Bank in ---------------------- enforcing any of its rights under this Agreement, nor any renewal, extension or rearrangement of any payment or covenant to be made or performed by Borrower hereunder, shall constitute a waiver of any of the terms of this Agreement or of any such right. No Default or Event of Default shall be waived by Bank except in a writing signed and delivered by an officer of Bank, and no waiver of any other Default or Event of Default shall operate as a waiver of any Default or Event of Default or of the same Default or Event of Default on a future occasion. No other amendment, modification or waiver of, or consent with respect to, any provision of this Agreement, the Note or other documents contemplated hereby shall be effective unless the same shall be in writing and signed and delivered by an officer of Bank. 8.4 Governing Law. This Agreement, and each and every term and provision ------------- hereof, shall be governed by and construed in accordance with the internal law of the 21 State of California. If any provisions of this Agreement shall for any reason be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision hereof, but this Agreement shall be construed as if such invalid or unenforceable provisions had never been contained herein. 8.5 Survival of Warranties, Etc. All of Borrower's covenants, agreements, --------------------------- representations and warranties made in connection with this Agreement and any document contemplated hereby shall survive the borrowing and the delivery of the Note hereunder and shall be deemed to have been relied upon by Bank, notwithstanding any investigation heretofore or hereafter made by Bank. All statements contained in any certificate or other document delivered to Bank at any time by or on behalf of Borrower pursuant hereto or in connection with the transactions contemplated hereby shall constitute representations and warranties by Borrower in connection with this Agreement. 8.6 Costs and Expenses. Borrower agrees that it will reimburse Bank, upon ------------------ demand, for all costs and expenses incurred by Bank in connection with (i) collecting or attempting to collect the Indebtedness or any part thereof; (ii) the enforcement of Bank's rights or remedies under this Agreement or the other documents contemplated hereby; (iii) the preparation or making of any amendments, modifications, waivers or consents with respect to this Agreement or the other documents contemplated hereby; and/or (iv) any other matters or proceedings arising out of or in connection with any lending arrangement between Bank and Borrower, which costs and expenses include without limit payments made by Bank for taxes, insurance, assessments, or other costs or expenses which Borrower is required to pay under this Agreement or the other documents contemplated hereby; expenses related to the examination of the assets of Borrower; audit expenses; court costs and reasonable attorneys' fees (whether inhouse or outside counsel is used, whether legal assistants are used, and whether such costs are incurred in formal or informal collection actions, federal bankruptcy proceedings, probate proceedings, on appeal or otherwise); and all other costs and expenses of Bank incurred in connection with any of the foregoing. 8.7 Payments on Saturdays, Etc. Whenever any payment to be made hereunder -------------------------- shall be stated to be due on a Saturday, Sunday or any other day which is not a Business Day, such payment may be made on the next succeeding Business Day, and such extension, if any, shall be included in computing interest in connection with such payment. 8.8 Binding Effect. This Agreement shall inure to the benefit of and shall -------------- be binding upon the parties hereto and their respective successors and assigns; provided, however, that Borrower may not assign or transfer its rights or obligations hereunder without the prior written consent of Bank. 8.9 Maintenance of Records. Borrower will keep all of its records ---------------------- concerning its business operations and accounting at its principal place of business. Borrower will give Bank prompt written notice of any change in its principal place of business, or in the location of its records. 22 8.10 Notices. All notices and communications provided for herein or in any ------- document contemplated hereby or required by law to be given shall be in writing (unless expressly provided to the contrary) and, if personally delivered, effective when delivered at the address below or, in the case of mailing, effective two (2) days after sending by first class mail, postage prepaid, addressed as follows: (a) If to Borrower, to: Symmetricom, Inc. 2300 Orchard Parkway San Jose, California 95131A1017 Attention: Mary Rorabaugh; and (b) if to Bank, to: Comerica Bank- California 201 Spear Street, Suite 200 San Francisco, CA 94105 Attention: Mark S. Hillhouse Corporate Banking Officer or to such other address as a party shall have designated to the other in writing in accordance with this section. The giving of at least five (5) days' notice before Bank shall take any action described in any notice shall conclusively be deemed reasonable for all purposes; provided, that this shall not be deemed to require Bank to give five days' notice or any notice if not specifically required in this Agreement. 8.11 Counterparts. This Agreement may be signed in any number of ------------ counterparts with the same effect as if the signatures were upon the same instrument. 8.12 Headings. Article and section headings in this Agreement are included -------- for the convenience of reference only and shall not constitute a part of this Agreement for any purpose. 8.13 Release and Discharge. Upon full payment of the Indebtedness and --------------------- performance by Borrower of all its other obligations hereunder, except as provided in Section 5.20(f) hereof the parties shall thereupon automatically each be fully, finally and forever released and discharged from any claim, liability or obligation in connection with this Agreement and the other documents contemplated hereby. 8.14 WAIVER OF JURY TRIAL. BORROWER AND BANK HEREBY IRREVOCABLY WAIVE THE -------------------- RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY AND ALL ACTIONS OR PROCEEDINGS AT ANY TIME IN WHICH BORROWER AND BANK ARE PARTIES ARISING OUT OF THIS AGREEMENT OR THE OTHER DOCUMENTS CONTEMPLATED HEREBY. 8.15 Integration. This Agreement, the Revolving Credit Note, and such other ----------- agreement, documents and instruments as may be executed in connection herewith shall supersede all prior negotiations, agreements and commitments with respect to the subject matter hereof. In the event of a conflict between this agreement and any other Agreement between the parties, this Agreement shall govern. 23 8.16 Further Assurances. Borrower shall execute such instruments and ------------------ documents as Bank may reasonably request from time to time and otherwise to effect the purposes hereof. IN WITNESS WHEREOF, Borrower and Bank have caused this Amended and Restated Revolving Credit Loan Agreement to be executed by their respective duly authorized officers as of the day and year first written above. SYMMETRICOM, INC. a California Corporation By: /s/ Roger Strauch -------------------------------- Its: Roger Strauch Chief Executive Officer By: /s/ Mary Rorabaugh ------------------------------------ Mary Rorabaugh Its: Vice President of Finance COMERICA BANK-CALIFORNIA By: /s/ Mark S. Hillhouse --------------------------------------- Mark S. Hillhouse Its: Corporate Banking Officer 24 LIST OF EXHIBITS EXHIBIT A - Revolving Credit Note EXHIBIT B - Borrower's Telephone and Facsimile Authorization EXHIBIT C - Corporation Resolutions and Incumbency Certification - Authority to Procure Loans EXHIBIT D - Not Applicable EXHIBIT E - Guaranty of Linfinity Microelectronics, Inc. EXHIBIT F - Corporate Resolutions and Authority to Support Another's Borrowings for Linfinity Microelectronics, Inc. EXHIBIT G - Guaranty of Telecom Solutions, Inc. Puerto Rico Inc. EXHIBIT H - Corporate Resolutions and Authority to Support Another's Borrowing- for Telecom Solutions Puerto Rico, Inc. 25 LIST OF SCHEDULES SCHEDULE 4.5 - Permitted Liens SCHEDULE 4.11 - Indebtedness SCHEDULE 4.12 - Material Agreements 26 EXHIBIT A FIRST AMENDED AND RESTATED REVOLVING CREDIT NOTE ------------------------------------------------ $7,000,000 June 29, 1998 FOR VALUE RECEIVED, the undersigned promises to pay to the order of COMERICA BANK-CALIFORNIA ("Bank") at any office of Bank in the State of California, on May 1, 2000, the principal sum or so much of the principal sum of Seven Million and 00/100 Dollars ($7,000,000) as may from time to time have been advanced and be outstanding under that certain First Amended and Restated Revolving Credit Loan Agreement dated June 29, 1998 between the undersigned and Bank (the "Agreement") plus all accrued but unpaid interest thereon. The unpaid principal amount of this First Amended and Restated Revolving Credit Note (this "Note") shall bear interest at the rate provided in Section 2.4 of the Agreement, which Agreement, as it may be amended from time to time, is by this reference incorporated herein and made a part hereof. Interest shall be payable to the extent accrued on the first (1st) day of each consecutive calendar month, beginning August 1, 1998, until maturity (whether by acceleration or otherwise) and, thereafter, on demand at a rate equal to three percent (3%) per annum plus the rate otherwise prevailing hereunder, but in no event to exceed the Legal Rate (as defined in the Agreement). This Note is a master note under which sums may or must be repaid from time to time and under which new advances are to be made by Bank pursuant to the terms and conditions of the Agreement, and the books and records of Bank shall constitute the best evidence of the amount of the indebtedness at any time owing hereunder. This Note is unsecured. If an Event of Default (as defined in the Agreement) occurs and is not cured within the time, if any, provided for by the Agreement, Bank may exercise any one or more of the rights and remedies granted by the Agreement or any document contemplated thereby or given to a lender under applicable law, including without limitation, the right to accelerate this Note and any other Indebtedness (as defined in the Agreement), and may set off against the principal of and interest on this Note or against any other Indebtedness (i) any amount owing by Bank to the undersigned; (ii) any property of the undersigned at any time in the possession of Bank or any Affiliate of Bank; and (iii) any amount in any deposit or other account (including, without limitation, an account evidenced by a certificate of deposit) of the undersigned with Bank or any Affiliate of Bank. The undersigned and all accommodation parties, guarantors and indorsers (i) waive presentment, demand, protest and notice of dishonor; (ii) agree that no extension or indulgence to the undersigned or release or non-enforcement of any rights, whether with or without notice, shall affect the obligations of any accommodation 27 party, guarantor or indorser; and (iii) agree to reimburse the holder of this Note for any and all costs and expenses incurred in collecting or attempting to collect any and all principal and interest under this Note (including, but not limited to, court costs and reasonable attorneys' fees, whether in-house or outside counsel is used and whether such costs and expenses are incurred in formal or informal collection actions, federal bankruptcy proceedings, including, without limitation, relief from stay and nondischargeability actions, appellate proceedings, probate proceedings, or otherwise). This Note shall be governed by and construed in accordance with the laws of the State of California. IN WITNESS WHEREOF, the undersigned has executed this First Amended and Restated Revolving Credit Note as of June 29, 1998. Symmetricom, Inc. By: ___________________________________ Roger Strauch Its: Chief Executive Officer By: ___________________________________ Mary Rorabaugh Its: Vice President of Finance 28 SCHEDULE 4.5 PERMITTED LIENS _______________ Lender/Financial Institution Date of Original Filing __________________________________________________________ MetLife Capital Corporation March 17, 1992 MetLife Capital Corporation August 29, 1991 MetLife Capital Corporation December 12, 1990 MetLife Capital Corporation December 14, 1990 MetLife Capital Corporation December 5, 1990 MetLife Capital Corporation May 13, 1991 MetLife Capital Corporation April 18, 1991 MetLife Capital Corporation March 10, 1992 29 SCHEDULE 4.11 INDEBTEDNESS ____________ Capital Lease Obligation ________________________ Subject: An office building lease Location: 2300 Orchard Parkway, San Jose, CA Lender/Owner Name: Nexus Equity 11 LLC Tenant: SymmetriCom Lease Term: April 1997 - April 2009 Monthly Rent: 1st 12 months $121,271 2nd 12 months $126,122 3rd 12 months $131,167 4th 12 months $136,414 5th 12 months $141,870 6th 12 months $147,545 7th 12 months $153,447 8th 12 months $159,585 9th 12 months $165,968 10th 12 months $172,607 11th 12 months $179,511 12th 12 months $186,691 Guarantee And Incentive Payment Agreement _________________________________________ Title of the Agreement: Offer Letter Name: Thomas W. Steipp, President and Chief Operating Officer Telecom Solutions (a division of SymmetriCom) Amount: Guarantee $162,500 of incentive payment for the Company's fiscal year 1999 (7/98-6/99) Date of the Offer Letter: February 19, 1998 30 SCHEDULE 4.12 MATERIAL AGREEMENTS ___________________ See Schedule 4.11 for discussion of material agreements 31 EXHIBIT B [LOGO OF COMERICA] Borrower's Telephone and Facsimile Authorization Date: June 29, 1998 ------------- Obligor Number: __________________________ Obligation Number: __________________ Assignment Unit: __________________________ The undersigned confirms certain borrowing arrangements pursuant to and subject to the terms of the $7,000,000.00 Note, and all renewals, extensions, ------------- modifications, and/or substitutions thereof (the "Note") dated DECEMBER 1, 1993, ---------------- executed and delivered by the undersigned to COMERICA BANK-CALIFORNIA ("Bank"). ------------------------ Until notice to the contrary to the undersigned, Bank has agreed that advances under the Note may be requested from time to time at the discretion of the undersigned by telephone or facsimile transmission. Immediately upon receipt from time to time of such telephone request or facsimile transmission from the undersigned, Bank is authorized to lend and credit such sums of money as requested to any of the following accounts or any other account with Bank designated by the undersigned (together with the Security Code) (such accounts(s) referred to as "Designated Accounts(s)") Comerica 1890684481 _________________________________________ _________________________________________ _________________________________________ Bank may rely on receipt of the Security Code as proof that the caller or sender is authorized to make the request for advance, repayment, or change of Designated Accounts(s) on behalf of the undersigned. The undersigned acknowledges that borrowings under the Note may be repaid from time to time at the election of the undersigned, but subject to the terms of the Note and any related agreement with Bank, upon receipt of instructions to do so sent from the undersigned to Bank by telephone or facsimile transmission (together with the Security Code). Repayment may be effected (in whole or in part) by debiting any account designated above (or designated in compliance with the above paragraph) in accordance with the undersigned's instructions (together with the Security Code). The undersigned shall remain fully responsible for any amounts outstanding under the Note if the undersigned's accounts with Bank are insufficient for the repayment of the Note. All requests for payments are to be against collected funds. The undersigned acknowledges that if Bank makes an advance or effects a repayment based on a request made by telephone or facsimile transmission, it shall be for the convenience of the undersigned and all risks involved in the use of this procedure shall be borne by the undersigned, and the undersigned expressly agrees to indemnify and hold Bank harmless therefor. Without limitation of the foregoing, the undersigned acknowledges that Bank shall have no duty to confirm the authority of anyone requesting an advance or repayment by telephone or facsimile transmission, and further the Bank has advised the undersigned to protect and safeguard the Security Code to prevent its unauthorized use. The undersigned assumes any losses or damages whatsoever which may occur or arise out of its failure to protect and safeguard the Security Code or out of its unauthorized use. Borrower(s): SYMMETRICOM, INC. --------------------------------------------- Address: 2500 ORCHARD PARKWAY, SAN JOSE, CA 95131-1017 --------------------------------------------- STREET ADDRESS CITY STATE ZIP CODE By: /s/ Roger A. Strauch Its: Chief Executive Officer ---------------------------- ---------------------------- SIGNATURE OF Roger A. Strauch TITLE (if applicable) By: /s/ Thomas W. Steipp Its: Chief Operating Officer ---------------------------- ---------------------------- SIGNATURE OF Thomas W. Steipp TITLE (if applicable) By: /s/ Mary A. Rornbaugh Its: Vice President, Finance ---------------------------- ---------------------------- SIGNATURE OF Mary A. Rornbaugh TITLE (if applicable) By: Its: ---------------------------- ---------------------------- SIGNATURE OF TITLE (if applicable) SECURITY CODE: ---------------- EXHIBIT C [LOGO OF COMERICA] CORPORATION RESOLUTIONS AND INCUMBENCY CERTIFICATION -AUTHORITY TO PROCURE LOAN ================================================================================ I certify that I am the duly elected and qualified Secretary of SYMMETRICOM, INC. a California corporation (the "Corporation") and the keeper of the records of the Corporation; that the following is a true and correct copy of resolutions duly adopted by the Board of Directors of the Corporation in accordance with its bylaws and applicable statutes on or as of June 29, 1998. COPY OF RESOLUTIONS: Be it Resolved, That: 1. Any (insert number required to sign) (2) two of the following (insert titles only) Chief Executive Officer, Chief Operating Officer, VP Finance of the Corporation are/is authorized, for, on behalf of, and in the name of the Corporation to: (a) Negotiate and procure loans, letters of credit and other credit or financial accommodations from Comerica Bank-California (the "Bank") up to an amount not exceeding $7,000,000 (if left blank, then unlimited); (b) Discount with the Bank commercial or other business paper belonging to the Corporation made or drawn by or upon third parties, without limit as to amount; (c) Purchase, sell, exchange, assign, endorse for transfer and/or deliver certificates and/or instruments representing stocks, bonds, evidences of indebtedness or other securities owned by the Corporation, whether or not registered in the name of the Corporation; (d) Give security for any liabilities of the Corporation to the Bank by grant, security interest, assignment, lien, deed of trust or mortgage upon any real or personal property, tangible or intangible of the Corporation; and (e) Execute and deliver in form and content as may be required by the Bank any and all notes, evidences of indebtedness, applications for letters of credit, guaranties, subordination agreements, loan and security agreements, financing statements, assignments, liens, deeds of trust, mortgages, trust receipts and other agreements, instruments or documents to carry out the purposes of these Resolutions, any or all of which may relate to all or to substantially all of the Corporation's property and assets. 2. Said Bank be and it is authorized and directed to pay the proceeds of any such loans or discounts as directed by the persons so authorized to sign, whether so payable to the order of any of said persons in their individual capacities or not, and whether such proceeds are deposited to the individual credit of any of said persons or not; 3. Any and all agreements, instruments and documents previously executed and acts and things previously done to carry out the purposes of these Resolutions are ratified, confirmed and approved as the act or acts of the Corporation. 4. These Resolutions shall continue in force and the Bank may consider the holders of said offices and their signatures to be and continue to be as set forth in a certified copy of these Resolutions delivered to the Bank, until notice to the contrary in writing is duly served on the Bank (such notice to have no effect on any action previously taken by the Bank in reliance on these Resolutions). 5. Any person, corporation or other legal entity dealing with the Bank may rely upon a certificate signed by an officer of the Bank to effect that these Resolutions and any agreement, instrument or document executed pursuant to them are still in full force and effect and binding upon the Corporation. 6. The Bank may consider the holders of the offices of the Corporation and their signatures, respectively, to be and continue to be as set forth in the Certificate of the Secretary of the Corporation until notice to the contrary in writing is duly served on the Bank. I further certify that the above Resolutions are in full force and effect as of the date of this Certificate; that these Resolutions and any borrowings or financial accommodations under these Resolutions have been properly noted in the corporate books and records, and have not been rescinded, annulled, revoked or modified; that neither the foregoing Resolutions nor any actions to be taken pursuant to them are or will be in contravention of any provision of the articles of incorporation or bylaws of the Corporation or of any agreement, indenture or other instrument to which the Corporation is a party or by which it is bound; and that neither the articles of incorporation nor bylaws of the Corporation nor any agreement, indenture or other instrument to which the Corporation is a party or by which it is bound require the vote or consent of shareholders of the Corporation to authorize any act, matter or thing described in the foregoing Resolutions. I further certify that the following named persons have been duly elected to the offices set opposite their respective names, that they continue to hold these offices at the present time, and that the signatures which appear below are the genuine, original signatures of each respectively: (PLEASE SUPPLY GENUINE SIGNATURES OF AUTHORIZED SIGNERS BELOW) Name (Type or Print) Title Signature - -------------------- ----- --------- Roger A. Strauch Chief Executive Officer /s/ ROGER A. STRAUCH Thomas W. Steipp Chief Operating Officer /s/ THOMAS W. STEIPP Mary A. Rorabaugh Vice President, Finance /s/ MARY A. RORABAUGH In Witness Whereof, I have affixed my name as Secretary and have caused the corporate seal of said Corporation to be affixed this 29th day of June, 1998. Mary A. Rorabaugh -------------------------- Secretary - ------------------------------------------------------------------------------- The Above Statements are Correct. ____________________________________________ SIGNATURE OF OFFICER OR DIRECTOR OF, IF NONE, A SHAREHOLDER OTHER THAN SECRETARY WHEN SECRETARY IS AUTHORIZED TO SIGN ALONE Failure to complete the above when the Secretary is authorized to sign alone shall constitute a certification by the Secretary that the Secretary is the sole Shareholder, Director and Officer of the Corporation. [LOGO OF COMERICA] EXHIBIT E GUARANTY ================================================================================ The undersigned, for value received , unconditionally and absolutely guarantee(s) to COMERICA BANK-CALIFORNIA ("Bank) a, California banking corporation, and to the Bank's successors and assigns, payment when due, whether by stated maturity, demand, acceleration or otherwise, of all existing and future indebtedness to the Bank of SYMMETRICOM INC. ("Borrower") of any successor in interest, including without limit any debtor-in-possession or trustee in bankruptcy which succeeds to the interest of this party or person jointly and severally the "Borrower"), however this indebtedness has been or may be incurred or evidenced, whether absolute or contingent direct or indirect, voluntary or involuntary, liquidated or unliquidated, joint or several, and whether or not known to the undersigned at the time of this Guaranty or at the time any future indebtedness is incurred (the "Indebtedness"). The Indebtedness guaranteed includes without limit: (a) any and all direct indebtedness of the Borrower to the Bank, including indebtedness evidenced by any and all promissory notes; (b) any and all obligations or liabilities of the Borrower to the Bank arising under any guaranty where the Borrower has guaranteed the payment of indebtedness owing to the Bank from a third party; (c) any and all obligations or liabilities of the Borrower to the Bank arising from applications or agreements for the issuance of letters of credit; (d) any and all obligations or liabilities of the Borrower to the Bank arising out of any other agreement by the Borrower including without limit any agreement to indemnify the Bank for environmental liability or to clean up hazardous waste; (e) any and all indebtedness, obligations or liabilities for which the Borrower would otherwise be liable to the Bank were it not for the invalidity, irregularity or unenforceability of them by reason of any bankruptcy, insolvency or other law or order of any kind, or for any other reason, including without limit liability for interest and attorneys' fees on, or in connection with, any of the Indebtedness from and after the filing by or against the Borrower of a bankruptcy petition whether an involuntary or voluntary bankruptcy case, including, without limitation, all attorneys' fees and costs incurred in connection with motions for relief from stay, cash collateral motions, nondischargeability motions, preference liability motions, fraudulent conveyance liability motions, fraudulent transfer liability motions and all other motions brought by Borrower, Guarantor, Bank or third parties in any way relating to Bank's rights with respect to such Borrower, Guarantor, or third party and/or affecting any collateral securing any obligation owed to Bank by Borrower, Guarantor, or any third party, probate proceedings, on appeal or otherwise; (f) any and all amendments, modifications, renewals and/or extensions of any of the above, including without limit amendments, modifications, renewals and/or extensions which are evidenced by new or additional instruments, documents or agreements; and (g) all costs of collecting Indebtedness, including without limit reasonable attorneys' fees and costs. The undersigned waive(s) notice of acceptance of this Guaranty and presentment, demand, protest, notice of protest, dishonor, notice of dishonor, notice of default, notice of intent to accelerate or demand payment of any Indebtedness, and diligence in collecting any Indebtedness, and agree(s) that the Bank may modify the terms of any Indebtedness, compromise, extend, increase, accelerate, renew or forbear to enforce payment of any or all Indebtedness, or permit the Borrower to incur additional Indebtedness, all without notice to the undersigned and without affecting in any manner the unconditional obligation of the undersigned under this Guaranty. The undersigned further waive(s) any and all other notices to which the undersigned might otherwise be entitled. The undersigned acknowledge(s) and agree(s) that the liabilities created by this Guaranty are direct and are not conditioned upon pursuit by the Bank of any remedy the Bank may have against the Borrower or any other person or any security. No invalidity, irregularity or unenforceability of any part or all of the Indebtedness or any documents evidencing the same, by reason of any bankruptcy, insolvency or other law or order of any kind or for any other reason, and no defense or setoff available at any time to the Borrower, shall impair, affect or be a defense or setoff to the obligations of the undersigned under this Guaranty. The undersigned deliver(s) this Guaranty based solely on the undersigned's independent investigation of the financial condition of the Borrower and is (are) not relying on any information furnished by the Bank. The undersigned assume(s) full responsibility for obtaining any further information concerning the Borrower's financial condition, the status of the Indebtedness or any other matter which the undersigned may deem necessary or appropriate from time to time. The undersigned waive(s) any duty on the part of the Bank, and agree(s) that it is not relying upon nor expecting the Bank to disclose to the undersigned any fact now or later known by the Bank, whether relating to the operations or condition of the Borrower, the existence, liabilities or financial condition of any co-guarantor of the Indebtedness, the occurrence of any default with respect to the Indebtedness, or otherwise, notwithstanding any effect these facts may have upon the undersigned's risk under this Guaranty or the undersigned's rights against the Borrower. The undersigned knowingly accept(s) the full range of risk encompassed in this Guaranty, which risk includes without limit the possibility that the Borrower may incur Indebtedness to the Bank after the financial condition of the Borrower, or its ability to pay its debts as they mature, has deteriorated. The undersigned represent(s) and warrant(s) that: (a) the Bank has made no representation to the undersigned as to the creditworthiness of the Borrower; and (b) the undersigned has (have) established adequate means of obtaining from the Borrower on a continuing basis financial and other information pertaining to the Borrower's financial condition. The undersigned agree(s) to keep adequately informed of any facts, events or circumstances which might in any way affect the risks of the undersigned under this Guaranty. The undersigned grant(s) to the Bank a security interest in and the right of setoff as to any and all property of the undersigned now or later in the possession of the Bank. The undersigned subordinate(s) any claim of any nature that the undersigned now or later has (have) against the Borrower to and in favor of all Indebtedness and agree(s) not to accept payment or satisfaction of any claim that the undersigned now or later may have against the Borrower without the prior written consent of the Bank. Should any payment, distribution, security, or proceeds, he received by the undersigned upon or with respect to any claim that the undersigned now or may later have against the Borrower, the undersigned shall immediately deliver the same to the Bank in the form received (except for endorsement or assignment by the undersigned where required by the Bank) for application on the Indebtedness, whether matured or unmatured, and until delivered the same shall be held in trust by the undersigned as the property of the Bank. The undersigned further assign(s) to the Bank as collateral for the obligations of the undersigned under this Guaranty all claims of any nature that the undersigned now or later has (have) against the Borrower (other than any claim under a deed of trust or mortgage covering real property) with full right on the part of the Bank, in its own name or in the name of the undersigned, to collect and enforce these claims. The undersigned agree(s) that no security now or later held by the Bank for the payment of any Indebtedness. whether from the Borrower, any guarantor, or otherwise, and whether in the nature of a security interest, pledge, lien, assignment, setoff, suretyship, guaranty, indemnity, insurance or otherwise, shall affect in any manner the unconditional obligation of the undersigned under this Guaranty, and the Bank, in its sole discretion, without notice to the undersigned, may release, exchange, enforce and otherwise deal with any security without affecting in any manner the unconditional obligation of the undersigned under this Guaranty. The undersigned acknowledges(s) and agree(s) that the Bank has no obligation to acquire or perfect any lien on or security interest in any asset(s), whether realty or personality, to secure payment of the Indebtedness, and the undersigned is (are) not relying upon any asset(s) in which the Bank has or may have a lien or security interest for payment of the Indebtedness. The undersigned acknowledge(s) that the effectiveness of this Guaranty is not conditioned on any or all of the Indebtedness being guaranteed by anyone else. Until the Indebtedness is irrevocably paid in full, the undersigned waive(s) any and all rights to be subrogated to the position of the Bank or to have the benefit of any lien, security interest or other guaranty now or later held by the Bank for the Indebtedness or to enforce any remedy which the Bank now or later has against the Borrower or any other person. Until the Indebtedness is irrevocably paid in full, the undersigned shall have no right of reimbursement, indemnity, contribution or other right of recourse to or with respect to the Borrower or any other person. The undersigned agree(s) to indemnify and hold harmless the Bank from and against any and all claims, actions, damages, costs and expenses, including without limit reasonable attorneys' fees, incurred by the Bank in connection with the 1. undersigned's exercise of any right of subrogation, contribution, indemnification or recourse with respect to this Guaranty. The Bank has no duty to enforce or protect any rights which the undersigned may have against the Borrower or any other person and the undersigned assume(s) full responsibility for enforcing and protecting these rights. Notwithstanding any provision of the preceding paragraph or anything else in this Guaranty to the contrary, if any of the undersigned is or becomes an "insider" or "affiliate" (as defined in Section 101 of the Federal Bankruptcy Code, as it may be amended) with respect to the Borrower, then that undersigned irrevocably and absolutely waives any and all rights of subrogation, contribution, indemnification, recourse, reimbursement and any similar rights against the Borrower (or any other guarantor) with respect to this Guaranty, whether such rights arise under an express or implied contract or by operation of law. It is the intention of the parties that the undersigned shall not be (or be deemed to be) a "creditor" (as defined in Section 101 of the Federal Bankruptcy Code, as it may be amended) of the Borrower (or any other guarantor) by reason of the existence of this Guaranty in the event that the Borrower becomes a debtor in any proceeding under the Federal Bankruptcy Code. This waiver is given to induce the Bank to enter into certain written contracts with the Borrower included in the Indebtedness. The undersigned warrant(s) and agree(s) that none of Bank's rights, remedies or interests shall be directly or indirectly impaired because of any of the undersigned's status as an "insider" or "affiliate" of the Borrower, and undersigned shall take any action, and shall execute any document, which the Bank may request in order to effectuate this warranty to the Bank. If any Indebtedness is guaranteed by two or more guarantors, the obligation of the undersigned shall be several and also joint, each with all and also each with any one or more of the others, and may be enforced at the option of the Bank against each severally, any two or more jointly, or some severally and some jointly The Bank, in its sole discretion, may release any one or more of the guarantors for any consideration which it deems adequate, and may fail or elect not to prove a claim against the estate of any bankrupt, insolvent, incompetent or deceased guarantor; and after that, without notice to any other guarantor, the Bank may extend or renew any or all Indebtedness and may permit the Borrower to incur additional Indebtedness, without affecting in any manner the unconditional obligation of the remaining guarantor(s). This action by the Bank shall not, however, be deemed to affect any right to contribution which may exist among the guarantors. Any of the undersigned may terminate their obligation under this Guaranty as to future Indebtedness (except as provided below) by (and only by) delivering written notice of termination to an officer of the Bank and receiving from an officer of the Bank written acknowledgement of delivery; provided, the termination shall not be effective until the opening of business on the fifth (5th) day following written acknowledgement of delivery. Any termination shall not affect in any way the unconditional obligations of the remaining guarantor(s), whether or not the termination is known to the remaining guarantor(s). Any termination shall not affect in any way the unconditional obligations of the terminating guarantor(s) as to any Indebtedness existing at the effective date of termination or any Indebtedness created after that pursuant to any commitment or agreement of the Bank or any Borrower loan with the Bank existing at the effective date of termination (whether advances or readvances by the Bank are optional or obligatory), or any modifications, extensions or renewals of any of this Indebtedness, whether in whole or in part, and as to all of this Indebtedness and modifications, extensions or renewals of it, this Guaranty shall continue effective until the same shall have been fully paid. The Bank has no duty to give notice of termination by any guarantor(s) to any remaining guarantor(s). The undersigned shall indemnify the Bank against all claims, damages, costs and expenses, including without limit reasonable attorneys' fees and costs, incurred by the Bank in connection with any suit, claim or action against the Bank arising out of any modification or termination of a Borrower loan or any refusal by the Bank to extend additional credit in connection with the termination of this Guaranty. Notwithstanding any prior revocation, termination, surrender or discharge of this Guaranty (or of any lien, pledge or security interest securing this Guaranty) in whole or part, the effectiveness of this Guaranty, and of all liens, pledges and security interests securing this Guaranty, shall automatically continue or be reinstated, as the case may be, in the event that (a) any payment received or credit given by the Bank in respect of the Indebtedness is returned, disgorged or rescinded as a preference, impermissible setoff, fraudulent conveyance, diversion of trust funds, or otherwise under any applicable state or federal law, including, without limitation, laws pertaining to bankruptcy or insolvency, in which case this Guaranty, and all liens, pledges and security interests securing this Guaranty, shall be enforceable against the undersigned as if the returned, disgorged or rescinded payment or credit had not been received or given by the Bank, and whether or not the Bank relied upon this payment or credit or changed its position as a consequence of it; or (b) any liability is imposed, or sought to be imposed, against the Bank relating to the environmental condition of, or the presence of hazardous or toxic substances on, in or about, any property given as collateral to the Bank by the Borrower, whether this condition is known or unknown, now exists or subsequently arises (excluding only conditions which arise after any acquisition by the Bank of any such property, by foreclosure, in lieu of foreclosure or otherwise, to the extent due to the wrongful act or omission of the Bank), in which case this Guaranty, and all liens, pledges and security interests securing this Guaranty, shall be enforceable against the undersigned to the extent of all liability, costs and expenses (including without limit reasonable attorneys' fees and costs) incurred by the Bank as the direct or indirect result of any environmental condition or hazardous or toxic substances. In the event of continuation or reinstatement of this Guaranty and the liens, pledges and security interests securing it, the undersigned agree(s) upon demand by the Bank to execute and deliver to the Bank those documents which the Bank determines are appropriate to further evidence (in the public records or otherwise) this continuation or reinstatement, although the failure of the undersigned to do so shall not affect in any way the reinstatement or continuation. If the undersigned do(es) not execute and deliver to the Bank upon demand such documents, the Bank and each Bank officer is irrevocably appointed (which appointment is coupled with an interest) the true and lawful attorney of the undersigned (with full power of substitution) to execute and deliver such documents in the name and on behalf of the undersigned. For purposes of this Guaranty, "environmental condition" includes, without limitation, conditions existing with respect to the surface or ground water, drinking water supply, land surface or subsurface and the air; and "hazardous or toxic substances" shall include any and all substances now or subsequently determined by any federal, state or local authority to be hazardous or toxic, or otherwise regulated by any of these authorities. Although the intent of the undersigned and the Bank is that California law shall apply to this Guaranty, regardless of whether California law applies, the undersigned further agree(s) as follows: With respect to the limitation, if any, stated in the Additional Provisions below on the amount of principal guaranteed under this Guaranty, the undersigned agree(s) that (a) this limitation shall not be a limitation on the amount of Borrower's Indebtedness to the Bank; (b) any payments by the undersigned shall not reduce the maximum liability of the undersigned under this Guaranty unless written notice to that effect is actually received by the Bank at or prior to the time of the payment; and (c) the liability of the undersigned to the Bank shall at all times be deemed to be the aggregate liability of the undersigned under this Guaranty and any other guaranties previously or subsequently given to the Bank by the undersigned and not expressly revoked, modified or invalidated in writing. The undersigned waive(s) any right to require the Bank to: (a) proceed against any person, including without limit the Borrower; (b) proceed against or exhaust any security held from the Borrower or any other person; (c) give notice of the terms, time and place of any public or private sale of personal property security held from the Borrower or any other person, or otherwise comply with the provisions of Section 9-504 of the California or other applicable Uniform Commercial Code; (d) pursue any other remedy in the Bank's power; or (e) make any presentments or demands for performance, or give any notices of nonperformance, protests, notices of protest, or notices of dishonor in connection with any obligations or evidences or Indebtedness held by tile flank as security, in connection with any other obligations or evidences of indebtedness which constitute in whole or in part Indebtedness, or in connection with the creation of new or additional Indebtedness. The undersigned authorize(s) the Bank, either before or after termination of this Guaranty, without notice to or demand on the undersigned and without affecting the undersigned's liability under this Guaranty, from time to time to: (a) apply any security and direct the order or manner of sale of it, including without limit, a nonjudicial sale permitted by the terms of the controlling security agreement, mortgage or deed of trust, as the Bank in its discretion may determine; (b) release or substitute any one or more of the endorsers or any other guarantors of the Indebtedness; and (c) apply payments received by the Bank from the Borrower to any indebtedness of the Borrower to the Bank, in such order as the Bank shall determine in its sole discretion, whether or not this indebtedness is covered by this Guaranty, and the undersigned waive(s) any provision of law regarding application of payments which specifies otherwise. The Bank may without notice assign this Guaranty in whole or in part. Upon the Bank's request, the undersigned agree(s) to provide to the Bank copies of the undersigned's financial statements. 2. The undersigned waive(s) any defense based upon or arising by reason of (a) any disability or other defense of the Borrower or any other person; (b) the cessation or limitation from any cause whatsoever, other than final and irrevocable payment in full, of the Indebtedness; (c) any lack of authority of any officer, director, partner, agent or any other person acting or purporting to act on behalf of the Borrower which is a corporation, partnership or other type of entity, or any defect in the formation of the Borrower; (d) the application by the Borrower of the proceeds of any Indebtedness for purposes other than the purposes represented by the Borrower to the Bank or intended. or understood by the Bank or the undersigned; (e) any act or omission by the Bank which directly or indirectly results in or aids the discharge of the Borrower or any Indebtedness by operation of law or otherwise; or (f) any modification of the Indebtedness, in any form whatsoever including without limit any modification made after effective termination, and including without limit, the renewal, extension, acceleration or other change in time for payment of the Indebtedness, or other change in the terms of any Indebtedness, including without limit increase or decrease of the interest rate. The undersigned understands that, absent this waiver, Bank's election of remedies, including but not limited to its decision to proceed to nonjudicial foreclosure on any real property securing the Indebtedness, could preclude Bank from obtaining a deficiency judgment against Borrower and the undersigned pursuant to California Code of Civil Procedure sections 580a, 580b, 580d or 726 and could also destroy any subrogation rights which the undersigned has against Borrower. The undersigned further understands that, absent this waiver, California law, including without limitation, California Code of Civil Procedure sections 580a, 580b, 580d or 726, could afford the undersigned one or more affirmative defenses to any action maintained by Bank against the undersigned on this Guaranty. The undersigned waives any and all rights and provisions of California Code of Civil Procedure sections 580a, 580b, 580d and 726, including, but not limited to any provision thereof that: (i) may limit the time period for Bank to commence a lawsuit against Borrower or the undersigned to collect any Indebtedness owing by Borrower or the undersigned to Bank; (ii) may entitle Borrower or the undersigned to a judicial or nonjudicial determination of any deficiency owed by Borrower or the undersigned to Bank, or to otherwise limit Bank's right to collect a deficiency based on the fair market value of such real property security; (iii) may limit Bank's right to collect a deficiency judgment after a sale of any real property securing the Indebtedness; (iv) may require Bank to take only one action to collect the Indebtedness or that may otherwise limit the remedies available to Bank to collect the Indebtedness. The undersigned waives all rights and defenses arising out of an election of remedies by Bank even though that election of remedies, such as a nonjudicial foreclosure with respect to security for a guaranteed obligation, has destroyed the undersigned's rights of subrogation and reimbursement against Borrower by the operation of Section 580d of the Code of Civil Procedure or otherwise. The undersigned acknowledges and agrees that this is a knowing and informed waiver of the undersigned's rights as discussed above and that Bank is relying on this waiver in extending credit to Borrower. The undersigned acknowledge(s) that the Bank has the right to sell, assign, transfer, negotiate, or grant participations in all or any part of the Indebtedness and any related obligations, including without limit this Guaranty. In connection with that right, the Bank may disclose any documents and information which the Bank now or later acquires relating to the undersigned and this Guaranty, whether furnished by the Borrower, the undersigned or otherwise. The undersigned further agree(s) that the Bank may disclose these documents and information to the Borrower. The undersigned agree(s) that the Bank may provide information relating to this Guaranty or to the undersigned to the Bank's parent, affiliates, subsidiaries and service providers. The total obligation under this Guaranty shall be UNLIMITED unless specifically limited in the Additional Provisions of this Guaranty, and this obligation (whether unlimited or limited to the extent indicated in the Additional Provisions) shall include, IN ADDITION TO any limited amount of principal guaranteed, any and all interest on all Indebtedness and any and all costs and expenses of any kind, including without limit reasonable attorneys' fees and costs, incurred by the Bank at any time(s) for any reason in enforcing any of the duties and obligations of the undersigned under this Guaranty or otherwise incurred by the Bank in any way connected with this Guaranty, the Indebtedness or any other guaranty of the Indebtedness (including without limit reasonable attorneys' fees and other expenses incurred in any suit involving the conduct of the Bank, the Borrower or the undersigned). All of these costs and expenses shall be payable immediately by the undersigned when incurred by the Bank, without demand, and until paid shall bear interest at the highest per annum rate applicable to any of the Indebtedness, but not in excess of the maximum rate permitted by law. Any reference in this Guaranty to attorneys' fees shall be deemed a reference to fees, charges, costs and expenses of both in-house and outside counsel and paralegals, whether or not a suit or action is instituted, and to court costs if a suit or action is instituted, and whether attorneys' fees or court costs are incurred at the trial court level, on appeal, in a bankruptcy, administrative or probate proceeding or otherwise. Any reference in the Additional Provisions or elsewhere (a) to this Guaranty being secured by certain collateral shall NOT be deemed to limit the total obligation of the undersigned under this Guaranty or (b) to this Guaranty being limited in any respect shall NOT be deemed to limit the total obligation of the undersigned under any prior or subsequent guaranty given by the undersigned to the Bank. The undersigned unconditionally and irrevocably waive(s) each and every defense and setoff of any nature which, under principles of guaranty or otherwise, would operate to impair or diminish in any way the obligation of the undersigned under this Guaranty, and acknowledge(s) that each such waiver is by this reference incorporated into each security agreement, collateral assignment, pledge and/or other document from the undersigned now or later securing this Guaranty and/or the Indebtedness, and acknowledge(s) that as of the date of this Guaranty no such defense or setoff exists. The undersigned acknowledge(s) that the effectiveness of this Guaranty is subject to no conditions of any kind. This Guaranty shall remain effective with respect to successive transactions which shall either continue the Indebtedness, increase or decrease it, or from time to time create new Indebtedness after all or any prior Indebtedness has been satisfied, until this Guaranty is terminated in the manner and to the extent provided above. The undersigned warrant(s) and agree(s) that each of the waivers set forth above are made with the undersigned's full knowledge of their significance and consequences, and that under the circumstances, the waivers are reasonable and not contrary to public policy or law If any of these waivers are determined to be contrary to any applicable law or public policy, these waivers shall be effective only to the extent permitted by law. This Guaranty constitutes the entire agreement of the undersigned and the Bank with respect to the subject matter of this Guaranty. No waiver, consent, modification or change of the terms of this Guaranty shall bind any of the undersigned or the Bank unless in writing and signed by the waiving party or an authorized officer of the waiving party, and then this waiver, consent, modification or change shall be effective only in the specific instance and for the specific purpose given. This Guaranty shall inure to the benefit of the Bank and its successors and assigns. This Guaranty shall be binding on the undersigned and the undersigned's heirs, legal representatives, successors and assigns including, without limit, any debtor in possession or trustee in bankruptcy for any of the undersigned. The undersigned has (have) knowingly and voluntarily entered into this Guaranty in good faith for the purpose of inducing the Bank to extend credit or make other financial accommodations to the Borrower, and the undersigned acknowledge(s) that the terms of this Guaranty are reasonable. If any provision of this Guaranty is unenforceable in whole or in part for any reason, the remaining provisions shall continue to be effective. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. Additional Provisions (if any): - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 3. THE UNDERSIGNED AND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED, EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS GUARANTY OR THE INDEBTEDNESS. IN WITNESS WHEREOF, the undersigned has (have) signed this Guaranty on JUNE 29, ------- 1998 - ---- GUARANTOR(S) LINFINITY MICROELECTRONICS INC. By: /s/ Mary A. Rorabaugh -------------------------------- Signature of Mary A. Rorabaugh Its: Vice President, Finance ------------------------ (If Applicant) By: /s/ Roger A. Strauch -------------------------------- Signature of Roger A. Strauch Its: Chief Executive Officer ----------------------- (If Applicable) GUARANTOR'S ADDRESS 11861 Western Avenue ------------------------------------ Street Address Garden Grove, CA 92641 ------------------------------------ City State Zip Code BORROWER(S): SYMMETRICOM, INC. 4. EXHIBIT F [LOGO OF COMERICA] CORPORATE RESOLUTIONS AND INCUMBENCY CERTIFICATION -- AUTHORITY TO SUPPORT ANOTHER'S BORROWINGS ================================================================================ I certify that I am the duly elected and qualified Secretary of LINFINITY MICROELECTRONICS INC. a DELAWARE corporation ("Corporation") and the keeper of the records of the Corporation; that the following is a true and correct copy of resolutions duly adopted by its Board of Directors in accordance with its bylaws and applicable statutes on or as of the 29 day of June 1998; Copy of Resolutions: Whereas, this Corporation is financially interested in the affairs of SYMMETRICOM, INC. ("Borrower"); and Whereas, there has been presented to the Board of Directors of this Corporation certain documents and instruments including but not limited to the following: GUARANTY [insert type(s) of support, e.g. Guaranty, Subordination Agreement, Security, Agreement, etc.] collectively referred to as ("Agreement"), as yet unexecuted, in favor of COMERICA BANK-CALIFORNIA ("Bank"), pertaining to the existing and/or future indebtedness of the Borrower to the Bank; and Whereas, in order to induce the Bank to extend credit or other financial accommodations to the Borrower, the Board of Directors deems it advisable, desirable, and in the best interests of this Corporation and its shareholders that this Corporation enter into the Agreement; Be It Resolved, That: 1. This Corporation approves, adopts, and enters into the Agreement. 2. The Chief Executive Officer, Vice President, Finance (or any one of them) of this Corporation be, and they are, and each is, authorized, empowered and directed to execute the Agreement, for and on behalf of this Corporation and in its name, with such changes or additions to it as any such officer may, in that officer's sole and absolute discretion, approve, and to deliver the same to Bank. 3. The above-named officers be, and they are, and each is, authorized, empowered and directed for and on behalf of this Corporation and in its name, to do all acts and things, to give security for the liabilities of the Corporation as the Bank shall request, and to sign, seal, execute, acknowledge, file, record and/or deliver all certificates, financing statements and other instruments, papers and documents from time to time necessary, desirable or appropriate to be done, signed, sealed, executed, acknowledged, filed, recorded and/or delivered in order to effectuate the purposes of the Agreement and of these Resolutions. 4. Any and all agreements, instruments and documents previously executed, and acts and things previously done, to carry out the purposes of these Resolutions are ratified, confirmed and approved as the act or acts of this Corporation. 5. These Resolutions shall continue in force, and the Bank may consider the holders of said offices and their signatures to be and continue to be as set forth in a certified copy of these Resolutions delivered to the Bank, until notice to the contrary in writing is duly served on the Bank (such notice to have no effect on any action previously taken by the Bank in reliance on these Resolutions). I further certify that the foregoing Resolutions are in full force and effect as of the date of this Certificate; that such Resolutions have been properly noted in the corporate books and records and have not been rescinded, annulled, revoked or modified; that neither the foregoing Resolutions nor any actions to be taken pursuant to them are or will be in violation of any provision of the articles of incorporation or bylaws of the Corporation or of any agreement, or other instrument to which the Corporation is a party or by which it is bound; and that neither the articles of incorporation nor bylaws of the Corporation nor any agreement or other instrument to which the Corporation is a party or by which it is bound require the vote or consent of shareholders of the Corporation to authorize any act, matter or thing described in the foregoing Resolutions. I further certify that the following named persons have been duly elected to the offices set opposite their respective names, that they continue to hold these offices at the present time, and that the signatures which appear below are the genuine, original signatures of each respectively: (PLEASE SUPPLY GENUINE SIGNATURES BELOW) NAME(TYPE OR PRINT) TITLE SIGNATURE Roger A. Strauch Chief Executive Officer /s/ Roger A. Strauch ---------------------- Mary A. Rorabaugh Vice President, Finance /s/ Mary A. Rorabaugh ---------------------- In Witness Whereof, I have affixed my name as Secretary and have caused the corporate seal of said Corporation to be affixed this 29 day of June, 1998. /s/ Mary A. Rorabaugh ---------------------------- SECRETARY - -------------------------------------------------------------------------------- The Above Statements are Correct. ______________________________________________ SIGNATURE OF OFFICER OR DIRECTOR OR, IF NONE, A SHAREHOLDER, OTHER THAN SECRETARY, WHEN SECRETARY IS AUTHORIZED TO SIGN ALONE. failure to complete the above when the Secretary is authorized to sign alone shall constitute a certification by the Secretary that the Secretary is the sole Shareholder, Director and Officer of the Corporation. - -------------------------------------------------------------------------------- CA 00191 (12-94) Exhibit G [LOGO OF COMERICA] GUARANTY ________________________________________________________________________________ The undersigned, for value received , unconditionally and absolutely guarantee(s) to COMERICA BANK-CALIFORNIA ("Bank) a, California banking corporation, and to the Bank's successors and assigns, payment when due, whether by stated maturity, demand, acceleration or otherwise, of all existing and future indebtedness to the Bank of SYMMETRICOM INC. ("Borrower") of any successor in interest, including without limit any debtor-in-possession or trustee in bankruptcy which succeeds to the interest of this party or person jointly and severally the "Borrower"), however this indebtedness has been or may be incurred or evidenced, whether absolute or contingent direct or indirect, voluntary or involuntary, liquidated or unliquidated, joint or several, and whether or not known to the undersigned at the time of this Guaranty or at the time any future indebtedness is incurred (the "Indebtedness"). The Indebtedness guaranteed includes without limit: (a) any and all direct indebtedness of the Borrower to the Bank, including indebtedness evidenced by any and all promissory notes; (b) any and all obligations or liabilities of the Borrower to the Bank arising under any guaranty where the Borrower has guaranteed the payment of indebtedness owing to the Bank from a third party; (c) any and all obligations or liabilities of the Borrower to the Bank arising from applications or agreements for the issuance of letters of credit; (d) any and all obligations or liabilities of the Borrower to the Bank arising out of any other agreement by the Borrower including without limit any agreement to indemnify the Bank for environmental liability or to clean up hazardous waste; (e) any and all indebtedness, obligations or liabilities for which the Borrower would otherwise be liable to the Bank were it not for the invalidity, irregularity or unenforceability of them by reason of any bankruptcy, insolvency or other law or order of any kind, or for any other reason, including without limit liability for interest and attorneys' fees on, or in connection with, any of the Indebtedness from and after the filing by or against the Borrower of a bankruptcy petition whether an involuntary or voluntary bankruptcy case, including, without limitation, all attorneys' fees and costs incurred in connection with motions for relief from stay, cash collateral motions, nondischargeability motions, preference liability motions, fraudulent conveyance liability motions, fraudulent transfer liability motions and all other motions brought by Borrower, Guarantor, Bank or third parties in any way relating to Bank's rights with respect to such Borrower, Guarantor, or third party and/or affecting any collateral securing any obligation owed to Bank by Borrower, Guarantor, or any third party, probate proceedings, on appeal or otherwise; (f) any and all amendments, modifications, renewals and/or extensions of any of the above, including without limit amendments, modifications, renewals and/or extensions which are evidenced by new or additional instruments, documents or agreements; and (g) all costs of collecting Indebtedness, including without limit reasonable attorneys' fees and costs. The undersigned waive(s) notice of acceptance of this Guaranty and presentment, demand, protest, notice of protest, dishonor, notice of dishonor, notice of default, notice of intent to accelerate or demand payment of any Indebtedness, and diligence in collecting any Indebtedness, and agree(s) that the Bank may modify the terms of any Indebtedness, compromise, extend, increase, accelerate, renew or forbear to enforce payment of any or all Indebtedness, or permit the Borrower to incur additional Indebtedness, all without notice to the undersigned and without affecting in any manner the unconditional obligation of the undersigned under this Guaranty. The undersigned further waive(s) any and all other notices to which the undersigned might otherwise be entitled. The undersigned acknowledge(s) and agree(s) that the liabilities created by this Guaranty are direct and are not conditioned upon pursuit by the Bank of any remedy the Bank may have against the Borrower or any other person or any security. No invalidity, irregularity or unenforceability of any part or all of the Indebtedness or any documents evidencing the same, by reason of any bankruptcy, insolvency or other law or order of any kind or for any other reason, and no defense or setoff available at any time to the Borrower, shall impair, affect or be a defense or setoff to the obligations of the undersigned under this Guaranty. The undersigned deliver(s) this Guaranty based solely on the undersigned's independent investigation of the financial condition of the Borrower and is (are) not relying on any information furnished by the Bank. The undersigned assume(s) full responsibility for obtaining any further information concerning the Borrower's financial condition, the status of the Indebtedness or any other matter which the undersigned may deem necessary or appropriate from time to time. The undersigned waive(s) any duty on the part of the Bank, and agree(s) that it is not relying upon nor expecting the Bank to disclose to the undersigned any fact now or later known by the Bank, whether relating to the operations or condition of the Borrower, the existence, liabilities or financial condition of any co-guarantor of the Indebtedness, the occurrence of any default with respect to the Indebtedness, or otherwise, notwithstanding any effect these facts may have upon the undersigned's risk under this Guaranty or the undersigned's rights against the Borrower. The undersigned knowingly accept(s) the full range of risk encompassed in this Guaranty, which risk includes without limit the possibility that the Borrower may incur Indebtedness to the Bank after the financial condition of the Borrower, or its ability to pay its debts as they mature, has deteriorated. The undersigned represent(s) and warrant(s) that: (a) the Bank has made no representation to the undersigned as to the creditworthiness of the Borrower; and (b) the undersigned has (have) established adequate means of obtaining from the Borrower on a continuing basis financial and other information pertaining to the Borrower's financial condition. The undersigned agree(s) to keep adequately informed of any facts, events or circumstances which might in any way affect the risks of the undersigned under this Guaranty. The undersigned grant(s) to the Bank a security interest in and the right of setoff as to any and all property of the undersigned now or later in the possession of the Bank. The undersigned subordinate(s) any claim of any nature that the undersigned now or later has (have) against the Borrower to and in favor of all Indebtedness and agree(s) not to accept payment or satisfaction of any claim that the undersigned now or later may have against the Borrower without the prior written consent of the Bank. Should any payment, distribution, security, or proceeds, be received by the undersigned upon or with respect to any claim that the undersigned now or may later have against the Borrower, the undersigned shall immediately deliver the same to the Bank in the form received (except for endorsement or assignment by the undersigned where required by the Bank) for application on the Indebtedness, whether matured or unmatured, and until delivered the same shall be held in trust by the undersigned as the property of the Bank. The undersigned further assign(s) to the Bank as collateral for the obligations of the undersigned under this Guaranty all claims of any nature that the undersigned now or later has (have) against the Borrower (other than any claim under a deed of trust or mortgage covering real property) with full right on the part of the Bank, in its own name or in the name of the undersigned, to collect and enforce these claims. The undersigned agree(s) that no security now or later held by the Bank for the payment of any Indebtedness, whether from the Borrower, any guarantor, or otherwise, and whether in the nature of a security interest, pledge, lien, assignment, setoff, suretyship, guaranty, indemnity, insurance or otherwise, shall affect in any manner the unconditional obligation of the undersigned under this Guaranty, and the Bank, in its sole discretion, without notice to the undersigned, may release, exchange, enforce and otherwise deal with any security without affecting in any manner the unconditional obligation of the undersigned under this Guaranty. The undersigned acknowledges(s) and agree(s) that the Bank has no obligation to acquire or perfect any lien on or security interest in any asset(s), whether realty or personalty, to secure payment of the Indebtedness, and the undersigned is (are) not relying upon any asset(s) in which the Bank has or may have a lien or security interest for payment of the Indebtedness. The undersigned acknowledge(s) that the effectiveness of this Guaranty is not conditioned on any or all of the Indebtedness being guaranteed by anyone else. Until the Indebtedness is irrevocably paid in full, the undersigned waive(s) any and all rights to be subrogated to the position of the Bank or to have the benefit of any lien, security interest or other guaranty now or later held by the Bank for the Indebtedness or to enforce any remedy which the Bank now or later has against the Borrower or any other person. Until the Indebtedness is irrevocably paid in full, the undersigned shall have no right of reimbursement, indemnity, contribution or other right of recourse to or with respect to the Borrower or any other person. The undersigned agree(s) to indemnify and hold harmless the Bank from and against any and all claims, actions, damages, costs and expenses, including without limit reasonable attorneys' fees, incurred by the Bank in connection with the 1. undersigned's exercise of any right of subrogation, contribution, indemnification or recourse with respect to this Guaranty. The Bank has no duty to enforce or protect any rights which the undersigned may have against the Borrower or any other person and the undersigned assume(s) full responsibility for enforcing and protecting these rights. Notwithstanding any provision of the preceding paragraph or anything else in this Guaranty to the contrary, if any of the undersigned is or becomes an "insider" or "affiliate" (as defined in Section 101 of the Federal Bankruptcy Code, as it may be amended) with respect to the Borrower, then that undersigned irrevocably and absolutely waives any and all rights of subrogation, contribution, indemnification, recourse, reimbursement and any similar rights against the Borrower (or any other guarantor) with respect to this Guaranty, whether such rights arise under an express or implied contract or by operation of law. It is the intention of the parties that the undersigned shall not be (or be deemed to be) a "creditor" (as defined in Section 101 of the Federal Bankruptcy Code, as it may be amended) of the Borrower (or any other guarantor) by reason of the existence of this Guaranty in the event that the Borrower becomes a debtor in any proceeding under the Federal Bankruptcy Code. This waiver is given to induce the Bank to enter into certain written contracts with the Borrower included in the Indebtedness. The undersigned warrant(s) and agree(s) that none of Bank's rights, remedies or interests shall be directly or indirectly impaired because of any of the undersigned's status as an "insider" or "affiliate" of the Borrower, and undersigned shall take any action, and shall execute any document, which the Bank may request in order to effectuate this warranty to the Bank. If any Indebtedness is guaranteed by two or more guarantors, the obligation of the undersigned shall be several and also joint, each with all and also each with any one or more of the others, and may be enforced at the option of the Bank against each severally, any two or more jointly, or some severally and some jointly The Bank, in its sole discretion, may release any one or more of the guarantors for any consideration which it deems adequate, and may fail or elect not to prove a claim against the estate of any bankrupt, insolvent, incompetent or deceased guarantor; and after that, without notice to any other guarantor, the Bank may extend or renew any or all Indebtedness and may permit the Borrower to incur additional Indebtedness, without affecting in any manner the unconditional obligation of the remaining guarantor(s). This action by the Bank shall not, however, be deemed to affect any right to contribution which may exist among the guarantors. Any of the undersigned may terminate their obligation under this Guaranty as to future Indebtedness (except as provided below) by (and only by) delivering written notice of termination to an officer of the Bank and receiving from an officer of the Bank written acknowledgement of delivery; provided, the termination shall not be effective until the opening of business on the fifth (5th) day following written acknowledgement of delivery. Any termination shall not affect in any way the unconditional obligations of the remaining guarantor(s), whether or not the termination is known to the remaining guarantor(s). Any termination shall not affect in any way the unconditional obligations of the terminating guarantor(s) as to any Indebtedness existing at the effective date of termination or any Indebtedness created after that pursuant to any commitment or agreement of the Bank or any Borrower loan with the Bank existing at the effective date of termination (whether advances or readvances by the Bank are optional or obligatory), or any modifications, extensions or renewals of any of this Indebtedness, whether in whole or in part, and as to all of this Indebtedness and modifications, extensions or renewals of it, this Guaranty shall continue effective until the same shall have been fully paid. The Bank has no duty to give notice of termination by any guarantor(s) to any remaining guarantor(s). The undersigned shall indemnify the Bank against all claims, damages, costs and expenses, including without limit reasonable attorneys' fees and costs, incurred by the Bank in connection with any suit, claim or action against the Bank arising out of any modification or termination of a Borrower loan or any refusal by the Bank to extend additional credit in connection with the termination of this Guaranty. Notwithstanding any prior revocation, termination, surrender or discharge of this Guaranty (or of any lien, pledge or security interest securing this Guaranty) in whole or part, the effectiveness of this Guaranty, and of all liens, pledges and security interests securing this Guaranty, shall automatically continue or be reinstated, as the case may be, in the event that (a) any payment received or credit given by the Bank in respect of the Indebtedness is returned, disgorged or rescinded as a preference, impermissible setoff, fraudulent conveyance, diversion of trust funds, or otherwise under any applicable state or federal law, including, without limitation, laws pertaining to bankruptcy or insolvency, in which case this Guaranty, and all liens, pledges and security interests securing this Guaranty, shall be enforceable against the undersigned as if the returned, disgorged or rescinded payment or credit had not been received or given by the Bank, and whether or not the Bank relied upon this payment or credit or changed its position as a consequence of it; or (b) any liability is imposed, or sought to be imposed, against the Bank relating to the environmental condition of, or the presence of hazardous or toxic substances on, in or about, any property given as collateral to the Bank by the Borrower, whether this condition is known or unknown, now exists or subsequently arises (excluding only conditions which arise after any acquisition by the Bank of any such property, by foreclosure, in lieu of foreclosure or otherwise, to the extent due to the wrongful act or omission of the Bank), in which case this Guaranty, and all liens, pledges and security interests securing this Guaranty, shall be enforceable against the undersigned to the extent of all liability, costs and expenses (including without limit reasonable attorneys' fees and costs) incurred by the Bank as the direct or indirect result of any environmental condition or hazardous or toxic substances. In the event of continuation or reinstatement of this Guaranty and the liens, pledges and security interests securing it, the undersigned agree(s) upon demand by the Bank to execute and deliver to the Bank those documents which the Bank determines are appropriate to further evidence (in the public records or otherwise) this continuation or reinstatement, although the failure of the undersigned to do so shall not affect in any way the reinstatement or continuation. If the undersigned do(es) not execute and deliver to the Bank upon demand such documents, the Bank and each Bank officer is irrevocably appointed (which appointment is coupled with an interest) the true and lawful attorney of the undersigned (with full power of substitution) to execute and deliver such documents in the name and on behalf of the undersigned. For purposes of this Guaranty, "environmental condition" includes, without limitation, conditions existing with respect to the surface or ground water, drinking water supply, land surface or subsurface and the air; and "hazardous or toxic substances" shall include any and all substances now or subsequently determined by any federal, state or local authority to be hazardous or toxic, or otherwise regulated by any of these authorities. Although the intent of the undersigned and the Bank is that California law shall apply to this Guaranty, regardless of whether California law applies, the undersigned further agree(s) as follows: With respect to the limitation, if any, stated in the Additional Provisions below on the amount of principal guaranteed under this Guaranty, the undersigned agree(s) that (a) this limitation shall not be a limitation on the amount of Borrower's Indebtedness to the Bank; (b) any payments by the undersigned shall not reduce the maximum liability of the undersigned under this Guaranty unless written notice to that effect is actually received by the Bank at or prior to the time of the payment; and (c) the liability of the undersigned to the Bank shall at all times be deemed to be the aggregate liability of the undersigned under this Guaranty and any other guaranties previously or subsequently given to the Bank by the undersigned and not expressly revoked, modified or invalidated in writing. The undersigned waive(s) any right to require the Bank to: (a) proceed against any person, including without limit the Borrower; (b) proceed against or exhaust any security held from the Borrower or any other person; (c) give notice of the terms, time and place of any public or private sale of personal property security held from the Borrower or any other person, or otherwise comply with the provisions of Section 9-504 of the California or other applicable Uniform Commercial Code; (d) pursue any other remedy in the Bank's power; or (e) make any presentments or demands for performance, or give any notices of nonperformance, protests, notices of protest, or notices of dishonor in connection with any obligations or evidences or Indebtedness held by the Bank as security, in connection with any other obligations or evidences of indebtedness which constitute in whole or in part Indebtedness, or in connection with the creation of new or additional Indebtedness. The undersigned authorize(s) the Bank, either before or after termination of this Guaranty, without notice to or demand on the undersigned and without affecting the undersigned's liability under this Guaranty, from time to time to: (a) apply any security and direct the order or manner of sale of it, including without limit, a nonjudicial sale permitted by the terms of the controlling security agreement, mortgage or deed of trust, as the Bank in its discretion may determine; (b) release or substitute any one or more of the endorsers or any other guarantors of the Indebtedness; and (c) apply payments received by the Bank from the Borrower to any indebtedness of the Borrower to the Bank, in such order as the Bank shall determine in its sole discretion, whether or not this indebtedness is covered by this Guaranty, and the undersigned waive(s) any provision of law regarding application of payments which specifies otherwise. The Bank may without notice assign this Guaranty in whole or in part. Upon the Bank's request, the undersigned agree(s) to provide to the Bank copies of the undersigned's financial statements. 2. The undersigned waive(s) any defense based upon or arising by reason of (a) any disability or other defense of the Borrower or any other person; (b) the cessation or limitation from any cause whatsoever, other than final and irrevocable payment in full, of the Indebtedness; (c) any lack of authority of any officer, director, partner, agent or any other person acting or purporting to act on behalf of the Borrower which is a corporation, partnership or other type of entity, or any defect in the formation of the Borrower; (d) the application by the Borrower of the proceeds of any Indebtedness for purposes other than the purposes represented by the Borrower to the Bank or intended or understood by the Bank or the undersigned; (e) any act or omission by the Bank which directly or indirectly results in or aids the discharge of the Borrower or any Indebtedness by operation of law or otherwise; or (f) any modification of the Indebtedness, in any form whatsoever including without limit any modification made after effective termination, and including without limit, the renewal, extension, acceleration or other change in time for payment of the Indebtedness, or other change in the terms of any Indebtedness, including without limit increase or decrease of the interest rate. The undersigned understands that, absent this waiver, Bank's election of remedies, including but not limited to its decision to proceed to nonjudicial foreclosure on any real property securing the Indebtedness, could preclude Bank from obtaining a deficiency judgment against Borrower and the undersigned pursuant to California Code of Civil Procedure sections 580a, 580b, 580d or 726 and could also destroy any subrogation rights which the undersigned has against Borrower. The undersigned further understands that, absent this waiver, California law, including without limitation, California Code of Civil Procedure sections 580a, 580b, 580d or 726, could afford the undersigned one or more affirmative defenses to any action maintained by Bank against the undersigned on this Guaranty. The undersigned waives any and all rights and provisions of California Code of Civil Procedure sections 580a, 580b, 580d and 726, including, but not limited to any provision thereof that: (i) may limit the time period for Bank to commence a lawsuit against Borrower or the undersigned to collect any Indebtedness owing by Borrower or the undersigned to Bank; (ii) may entitle Borrower or the undersigned to a judicial or nonjudicial determination of any deficiency owed by Borrower or the undersigned to Bank, or to otherwise limit Bank's right to collect a deficiency based on the fair market value of such real property security; (iii) may limit Bank's right to collect a deficiency judgment after a sale of any real property securing the Indebtedness; (iv) may require Bank to take only one action to collect the Indebtedness or that may otherwise limit the remedies available to Bank to collect the Indebtedness. The undersigned waives all rights and defenses arising out of an election of remedies by Bank even though that election of remedies, such as a nonjudicial foreclosure with respect to security for a guaranteed obligation, has destroyed the undersigned's rights of subrogation and reimbursement against Borrower by the operation of Section 580d of the Code of Civil Procedure or otherwise. The undersigned acknowledges and agrees that this is a knowing and informed waiver of the undersigned's rights as discussed above and that Bank is relying on this waiver in extending credit to Borrower. The undersigned acknowledge(s) that the Bank has the right to sell, assign, transfer, negotiate, or grant participations in all or any part of the Indebtedness and any related obligations, including without limit this Guaranty. In connection with that right, the Bank may disclose any documents and information which the Bank now or later acquires relating to the undersigned and this Guaranty, whether furnished by the Borrower, the undersigned or otherwise. The undersigned further agree(s) that the Bank may disclose these documents and information to the Borrower. The undersigned agree(s) that the Bank may provide information relating to this Guaranty or to the undersigned to the Bank's parent, affiliates, subsidiaries and service providers. The total obligation under this Guaranty shall be UNLIMITED unless specifically limited in the Additional Provisions of this Guaranty, and this obligation (whether unlimited or limited to the extent indicated in the Additional Provisions) shall include, IN ADDITION TO any limited amount of principal guaranteed, any and all interest on all Indebtedness and any and all costs and expenses of any kind, including without limit reasonable attorneys' fees and costs, incurred by the Bank at any time(s) for any reason in enforcing any of the duties and obligations of the undersigned under this Guaranty or otherwise incurred by the Bank in any way connected with this Guaranty, the Indebtedness or any other guaranty of the Indebtedness (including without limit reasonable attorneys' fees and other expenses incurred in any suit involving the conduct of the Bank, the Borrower or the undersigned). All of these costs and expenses shall be payable immediately by the undersigned when incurred by the Bank, without demand, and until paid shall bear interest at the highest per annum rate applicable to any of the Indebtedness, but not in excess of the maximum rate permitted by law. Any reference in this Guaranty to attorneys' fees shall be deemed a reference to fees, charges, costs and expenses of both in-house and outside counsel and paralegals, whether or not a suit or action is instituted, and to court costs if a suit or action is instituted, and whether attorneys' fees or court costs are incurred at the trial court level, on appeal, in a bankruptcy, administrative or probate proceeding or otherwise. Any reference in the Additional Provisions or elsewhere (a) to this Guaranty being secured by certain collateral shall NOT be deemed to limit the total obligation of the undersigned under this Guaranty or (b) to this Guaranty being limited in any respect shall NOT be deemed to limit the total obligation of the undersigned under any prior or subsequent guaranty given by the undersigned to the Bank. The undersigned unconditionally and irrevocably waive(s) each and every defense and setoff of any nature which, under principles of guaranty or otherwise, would operate to impair or diminish in any way the obligation of the undersigned under this Guaranty, and acknowledge(s) that each such waiver is by this reference incorporated into each security agreement, collateral assignment, pledge and/or other document from the undersigned now or later securing this Guaranty and/or the Indebtedness, and acknowledge(s) that as of the date of this Guaranty no such defense or setoff exists. The undersigned acknowledge(s) that the effectiveness of this Guaranty is subject to no conditions of any kind. This Guaranty shall remain effective with respect to successive transactions which shall either continue the Indebtedness, increase or decrease it, or from time to time create new Indebtedness after all or any prior Indebtedness has been satisfied, until this Guaranty is terminated in the manner and to the extent provided above. The undersigned warrant(s) and agree(s) that each of the waivers set forth above are made with the undersigned's full knowledge of their significance and consequences, and that under the circumstances, the waivers are reasonable and not contrary to public policy or law If any of these waivers are determined to be contrary to any applicable law or public policy, these waivers shall be effective only to the extent permitted by law. This Guaranty constitutes the entire agreement of the undersigned and the Bank with respect to the subject matter of this Guaranty. No waiver, consent, modification or change of the terms of this Guaranty shall bind any of the undersigned or the Bank unless in writing and signed by the waiving party or an authorized officer of the waiving party, and then this waiver, consent, modification or change shall be effective only in the specific instance and for the specific purpose given. This Guaranty shall inure to the benefit of the Bank and its successors and assigns. This Guaranty shall be binding on the undersigned and the undersigned's heirs, legal representatives, successors and assigns including, without limit, any debtor in possession or trustee in bankruptcy for any of the undersigned. The undersigned has (have) knowingly and voluntarily entered into this Guaranty in good faith for the purpose of inducing the Bank to extend credit or make other financial accommodations to the Borrower, and the undersigned acknowledge(s) that the terms of this Guaranty are reasonable. If any provision of this Guaranty is unenforceable in whole or in part for any reason, the remaining provisions shall continue to be effective. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. Additional Provisions (if any): ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ 3. THE UNDERSIGNED AND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED, EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS GUARANTY OR THE INDEBTEDNESS. IN WITNESS WHEREOF, the undersigned has (have) signed this Guaranty on JUNE 29, 1998 TELECOM SOLUTIONS PUERTO RICO, INC. GUARANTOR(S)____________________________________ By: /s/ Mary A. Rorabaugh --------------------------------------------- Signature of Mary A. Rorabaugh Its: Vice President, Finance ------------------------------------ (If Applicant) By: /s/ Thomas W. Steipp --------------------------------------------- Signature of Thomas W. Steipp Its: Chief Operating Officer ------------------------------------ (If Applicable) GUARANTOR'S ADDRESS Industrial Park, Building 7 ------------------------------------------------ Street Address P.O. Box 1046 Aguada Puerto Rico 00602-1046 ------------------------------------------------ City State Zip Code BORROWER(S): SYMMETRICOM, INC. 4. [LOGO OF COMERICA] EXHIBIT H CORPORATE RESOLUTIONS AND INCUMBENCY CERTIFICATION - AUTHORITY TO SUPPORT ANOTHER'S BORROWINGS ________________________________________________________________________________ I certify that am the duly elected and qualified Secretary of TELECOM SOLUTIONS PUERTO RICO, INC a CALIFORNIA corporation ("Corporation") and the keeper of the records of the Corporation; that the following is a true and correct copy of resolutions duly adopted by its Board of Directors in accordance with its bylaws and applicable statutes on or as of the 29 day of June, 1998; Copy of Resolutions: Whereas, this Corporation is financially interested in the affairs of SYMMETRICOM, INC. ("Borrower"); and Whereas, there has been presented to the Board of Directors of this Corporation certain documents and instruments including but not limited to the following: GUARANTY [insert type(s) of support, e.g. Guaranty, Subordination Agreement, Security, Agreement, etc.] collectively referred to as ("Agreement"), as yet unexecuted, in favor of COMERICA BANK-CALIFORNIA ("Bank"), pertaining to the existing and/or future indebtedness of the Borrower to the Bank; and Whereas, in order to induce the Bank to extend credit or other financial accommodations to the Borrower, the Board of Directors deems it advisable, desirable, and in the best interests of this Corporation and its shareholders that this Corporation enter into the Agreement; Be It Resolved, That: 1. This Corporation approves, adopts, and enters into the Agreement. 2. The Chief Operating Officer, Vice President, Finance (or any one of them) of this Corporation be, and they are, and each is, authorized, empowered and directed to execute the Agreement, for and on behalf of this Corporation and in its name, with such changes or additions to it as any such officer may, in that officer's sole and absolute discretion, approve, and to deliver the same to Bank. 3. The above-named officers be, and they are, and each is, authorized, empowered and directed for and on behalf of this Corporation and in its name, to do all acts and things, to give security for the liabilities of the Corporation as the Bank shall request, and to sign, seal, execute, acknowledge, file, record and/or deliver all certificates, financing statements and other instruments, papers and documents from time to time necessary, desirable or appropriate to be done, signed, sealed, executed, acknowledged, filed, recorded and/or delivered in order to effectuate the purposes of the Agreement and of these Resolutions. 4. Any and all agreements, instruments and documents previously executed, and acts and things previously done, to carry out the purposes of these Resolutions are ratified, confirmed and approved as the act or acts of this Corporation. 5. These Resolutions shall continue in force, and the Bank may consider the holders of said offices and their signatures to be and continue to be as set forth in a certified copy of these Resolutions delivered to the Bank, until notice to the contrary in writing is duly served on the Bank (such notice to have no effect on any action previously taken by the Bank in reliance on these Resolutions). I further certify that the foregoing Resolutions are in full force and effect as of the date of this Certificate; that such Resolutions have been properly noted in the corporate books and records and have not been rescinded, annulled, revoked or modified; that neither the foregoing Resolutions nor any actions to be taken pursuant to them are or will be in violation of any provision of the articles of incorporation or bylaws of the Corporation or of any agreement, or other instrument to which the Corporation is a party or by which it is bound; and that neither the articles of incorporation nor bylaws of the Corporation nor any agreement or other instrument to which the Corporation is a party or by which it is bound require the vote or consent of shareholders of the Corporation to authorize any act, matter or thing described in the foregoing Resolutions. I further certify that the following named persons have been duly elected to the offices set opposite their respective names, that they continue to hold these offices at the present time, and that the signatures which appear below are the genuine, original signatures of each respectively: (PLEASE SUPPLY GENUINE SIGNATURES BELOW) NAME(Type or Print) TITLE Thomas W. Steipp Chief Operating Officer /s/ Thomas W. Steipp - ---------------------- --------------------------- ---------------------- Mary A. Rorabaugh Vice President, Finance /s/ Mary A. Rorabaugh - ---------------------- --------------------------- ---------------------- In Witness whereof, I have affixed my name as Secretary and have caused the corporate seal of said Corporation to be affixed this 29 day of June, 1998. /s/ Mary A. Rorabaugh ---------------------------------- SECRETARY - -------------------------------------------------------------------------------- The Above Statements are Correct._______________________________________________ SIGNATURE OF OFFICER OR DIRECTOR OR, IF NONE, A SHAREHOLDER, OTHER THAN SECRETARY, WHEN SECRETARY IS AUTHORIZED TO SIGN ALONE Failure to complete the above when the Secretary is authorized to sign alone shall constitute a certification by the Secretary that the Secretary is the sole Shareholder, Director and Officer of the Corporation. - -------------------------------------------------------------------------------- EX-10.19 7 EMPLOYMENT OFFER LETTER BETWN THE COMPANY & T. STEIPP EXHIBIT 10.19 [LETTERHEAD OF SYMMETRICOM APPEARS HERE] February 19, 1998 Mr. Thomas W. Steipp 6220 Costa Lake Point Flowery Branch, GA 30542 Dear Tom, I am pleased to confirm SymmetriCom, Inc.'s offer of employment according to the terms we discussed on the telephone last week. Your starting position will be President and Chief Operating Officer of Telecom Solutions, a division of SymmetriCom, Inc. reporting to me. Subject to approval by the Board of Directors, you will become President and Chief Executive Officer of SymmetriCom, Inc. in July, 1998. Your starting base salary will be $4,807.69 per week ($250,000 on an annualized basis). We will review your compensation once each year, at the first regularly scheduled meeting of the Company's Board of Directors. This meeting normally occurs in late July or early August. In addition to your base salary, you will participate in the Company's Management Incentive Plan, the terms of which are determined each fiscal year by the Board of Directors. For Fiscal 1999, beginning July 1, 1998, and ending June 30, 1999, you will have the opportunity to earn up to 130% of your base salary. We will guarantee an incentive payment of $162,500 for fiscal 1999, which is 50% of your maximum. The balance of your incentive for fiscal 1999, will be funded from profit on a formula to be determined by the Company's Board of Directors at its first regularly scheduled meeting in fiscal 1999. Since you will be involved in making decisions which will have a considerable effect on the productivity and profitability of the Company, we are pleased to recommend an option of 250,000 shares of SymmetriCom, Inc. stock to you. Upon becoming an employee and subject to approval by the Board of Directors, you will receive this option under the terms and conditions of the Company's Stock Option Plans; at the fair market value on the day of the grant. This grant will consist of Incentive Stock Options (ISO's) to the extent permitted by law. The balance will be Non-Qualified Options (NSO's). The options vest 25% after one year, 50% after two years, and 100% after three years. The term of the options is ten years. A description of the SymmetriCom, Inc. Stock Option Plan is enclosed, along with a sample Stock Option Agreement. Page 2 February 19, 1998 To assist you and your family in relocating to the bay area, we will: 1. Loan you $400,000 with an interest rate of 6.0%. We will forgive this loan, and the interest due in four equal installments. The first installment will be forgiven on June 30, 1998, with remaining installments to be forgiven on June 30, 1999, 2000 and 2001. You are responsible for taxes owed due to loan forgiveness. Please see the termination provision listed below. 2. Loan you an additional $500,000, interest free. This loan is intended to qualify as a relocation loan pursuant to Section 7872 of the Internal Revenue Code and applicable regulations and must be repaid in ten years. We may require a security interest in some of your assets, including the home you purchase in California. Please see termination provision listed below. If you are no longer an employee of SymmetriCom, Inc. this loan must become interest bearing. 3. We will pay closing costs on the home you purchase in California, but loan points are not included. 4. We will pay closing costs on the house you sell in Atlanta, but not including real estate commission. 5. We will pay for an apartment for you in California for up to six months while you are finding a home in California and selling your home in Atlanta. In addition, we will pay for you to travel to Atlanta up to twice each month during the relocation period or for your wife to travel to California. We will pay for a rental car in California during the relocation period. 6. We will pay reasonable costs for moving your household goods to California. We understand you will move your household goods to California in two phases. 7. We will pay airfare for you and your family to relocate to California. If you choose to drive, we will reimburse you for mileage at the allowable limit set by the Internal Revenue Service for up to two vehicles. 8. If any of the relocation costs outlined in paragraphs 3, 4, 5, 6 and 7 result in taxable income reported on your W2, that amount will be grossed up for federal income taxes and any state and local income taxes at the then current supplementary wage withholding rates. Gross up will not include amounts for non-income taxes such as FICA, Medicare or disability. Page 3 February 19, 1998 You will participate in the Company's Executive Medical Plan. A description is enclosed. You will accrue vacation at the rate of four weeks per year. We will pay for a car allowance of $917.00 per month (which is $11,000 annualized). The enclosed program document covers details. Please read, sign and return this with your acceptance. In the unlikely event we terminate your employment, other than for cause (defined as commission of a felony, a breach of fiduciary duty, or willful failure to follow a directive of the Company or the Board of Directors), we will continue your base salary for up to twelve months or until you accept other employment. Medical benefits and car allowance remain in effect during the continuation period. In addition, we will continue to honor the loan agreements described above. If you resign, or are terminated for cause, any loan balance becomes immediately due and payable. Stock option vesting stops according to the Stock Option Plan and the Option Agreement if your employment by SymmetriCom, Inc. ceases. A description of benefits is enclosed, in addition to agreements covering Invention Assignment and Secrecy and Insider Trading. Please sign and return these with your acceptance. This offer is valid until February 27, 1998 and is conditional on proof of eligibility to legally work in the United States under the Immigration Reform and Control Act of 1986 ("IRCA"). Please refer to the enclosed document titled I-9 Explanation, which explains IRCA and the documents you will need to bring with you when you report to work. It is understood that your employment with SymmetriCom, Inc. is voluntarily entered into and is for no specific term. As a result, you are free to resign at any time, for any reason or for no reason. Similarly, the Company is free to conclude its at will employment with you at any time, with or without cause. Conditions outlined above apply to any termination. Tom, I look forward to working with you. I believe we have a very exciting opportunity, although also very challenging. I think your skills and capability can make a big difference to SymmetriCom, Inc. and I think we can offer you considerable personal growth. With regards, SymmetriCom, Inc. /s/ WILLIAM D. RASDAL _____________________________ William D. Rasdal Chairman of the Board and CEO WDR/jw OFFER AGREED TO AND ACCEPTED I understand that this agreement sets forth our entire agreement respecting the terms of my employment with SymmetriCom, Inc. and supersedes any prior representation or agreements, whether written or oral. I further understand that this agreement may not be modified, except in writing signed by the Chief Executive Officer of SymmetriCom, Inc. and me, or approved by the Board of Directors in case I am Chief Executive Officer. By: /s/ THOMAS W. STEIPP _____________________________________________________________ Start Date: 15 MAR 98 _____________________________________________________________ Attachments: Employment Application (to be completed and returned) Equal Employment Opportunity Questionnaire I-9 Immigration and Reform Act of 1986 Insider Trading Agreement (signature required) Invention Assignment and Secrecy (signature required) Description of Benefits Automobile Allowance Plan (signature required) Executive Medical Plan 1990 Employee Stock Plan 1990 Stock Option Agreement (example) EX-10.22 8 PROMISSORY NOTES SECURED BY DEED OF TRUST EXHIBIT 10.22 PROMISSORY NOTE SECURED BY DEED OF TRUST ---------------------------------------- $500,000 San Jose, California March 24, 1998 FOR VALUE RECEIVED, the undersigned, Thomas W. Steipp ("Employee") and Debra L. Steipp, husband and wife ("Borrowers"), promise to pay to Symmetricom, Inc., a California corporation (the "Company"), or order, the principal amount of Five Hundred Thousand Dollars ($500,000). The outstanding principal amount shall not bear interest except as otherwise provided below with respect to a default. The outstanding principal amount shall be due and payable to the holder hereof at 2300 Orchard Parkway, San Jose, California 95131, or such other place as the holder hereof may designate, upon the earlier of the following dates (collectively, "Maturity Events"): (i) Five (5) days following the date that Employee resigns from the Company. (ii) Five (5) days following the date that Employee's employment with the Company is terminated for cause. The term "termination for cause" includes, without limitation, dishonesty, commission of a felony, a breach of Employee's fiduciary duty or willful failure to follow a directive of the Company or the Board of Directors of the Company. (iii) Three hundred sixty (360) days following the date that Employee's employment with the Company is terminated without cause. (iv) The date of any sale, conveyance, assignment, alienation or any other form of transfer, whether voluntary or involuntary, of that certain real property commonly known as 15560 Shannon Road, Los Gatos, California (the "Property"), or any part thereof or interest therein; except that the following transfers of the Property shall not be deemed to be a Maturity Event: a) A transfer upon the death of Employee to Employee's surviving spouse (provided the surviving spouse is an obligor hereunder) or to Employee upon the death of Employee's surviving spouse; b) A transfer by an obligor hereof whereby such obligor's spouse becomes a co-owner of the Property; c) A transfer resulting from a decree of dissolution of the marriage or legal separation of Employee and Debra L. Steipp or from a property settlement agreement incidental to such a decree which requires the obligor spouse to assume responsibility for the obligations under this Note and the Deed of Trust (hereinafter defined) and pursuant to which Employee or Debra L. Steipp (whoever is the obligor) becomes the sole owner of the Property; or d) A transfer by one or both obligors under the Note into an inter vivos trust in which one or both obligors are beneficiaries. (v) March 25, 2008. In the event that any of the following occurs, then unless otherwise prohibited by law, the holder hereof shall have the option, without demand or notice, to declare the entire outstanding principal balance of this Note, together with all accrued and unpaid interest thereon to be immediately due and payable: (i) Borrowers default in the payment of principal or interest when due pursuant to the terms hereof; (ii) Borrowers default in their performance of any obligation contained in the deed of trust encumbering the Property and securing this Note (the "Deed of Trust") or any other deed of trust, security agreement or other agreement (including any amendment, modification or extension thereof) which may hereafter be executed by Borrowers for the purpose of securing this Note; (iii) any representation or warranty contained in this Note, the Deed of Trust, or any other agreement or instrument executed in connection with the loan proves to have been false or misleading in any material respect; (iv) Borrowers default in their obligation to pay any indebtedness or to perform any other obligation which is secured by a deed of trust or other lien on the Property or default under any deed of trust securing such indebtedness; or (v) Borrowers default in their obligation to pay any indebtedness evidenced by any promissory note executed by Borrowers and payable to the holder hereof or there occurs any other default under any deed of trust, mortgage or other document securing repayment of such indebtedness. The principal amount evidenced by this Note shall be used by Borrowers to purchase the Property which shall become the primary residence of Borrowers. This Note shall be secured by a deed of trust given by Borrowers to the Company (the "Deed of Trust"). The Deed of Trust shall be a first-priority deed of trust. In addition to causing the execution and delivery of the Deed of Trust, Borrowers shall take any and all further actions that may from time to time be required to ensure that the Deed of Trust creates a valid first-priority lien on the Property in favor of the Company, which shall secure this Note. Borrowers shall furnish evidence reasonably satisfactory to the Company that as of the date of the close of escrow for the Property: (i) Borrowers shall have good and marketable title to the Property; (ii) the consent of no other person or entity shall be required to grant a security interest in the Property to the Company; and (iii) there shall be no deed of trust, mortgage or other encumbrance against the Property or other title defect unless approved by the Company, which approval may be withheld in the Company's sole discretion. If it should hereafter be determined that there are defects against title or matters which could result in defects against title to the Property or that the consent of another person or entity is required to grant to, and perfect in, the Company a valid first-priority lien on the Property, Borrowers shall, promptly on demand by the Company, take all actions necessary to remove such defects and to obtain such consent and grant (or cause to be granted) and perfect such lien on the Property. Failure of Borrowers to comply with the provisions of this paragraph shall be deemed a default under this Note and the Deed of Trust. 2 In the event any amount owed by Borrowers pursuant to this Note is not paid when due, such unpaid amount shall bear interest from the due date until paid at a rate equal to the lower of: (i) ten percent (10%) per annum; or (ii) the maximum rate permitted by law. After such due date, all payments shall be credited first to accrued interest and then to principal. If an action is instituted for collection of this Note, the Borrowers agree to pay court costs and reasonable attorneys' fees incurred by the holder thereof. This Note may be amended or modified, and provisions hereof may be waived, only by the written agreement of Borrowers and the holder hereof. No delay or failure by the holder hereof in exercising any right, power or remedy hereunder shall operate as a waiver of such right, power or remedy, and a waiver of any right, power or remedy on any one occasion shall not operate as a bar or waiver of any such right, power or remedy on any other occasion. Without limiting the generality of the foregoing, the delay or failure by the holder hereof for any period of time to enforce collection of any amounts due hereunder shall not be deemed to be a waiver of any rights of the holder hereof under contract or under law. The rights of the Company under this Note are in addition to any other rights and remedies which the holder hereof may have. This Note shall be governed by and construed in accordance with the laws of the State of California, without regard to the principles of conflicts of laws of that State. This Note may be prepaid at any time without penalty. THIS NOTE, THE DEED OF TRUST AND ALL RELATED DOCUMENTATION ARE EXECUTED VOLUNTARILY AND WITHOUT ANY DURESS OR UNDUE INFLUENCE ON THE PART OR BEHALF OF THE PARTIES HERETO, WITH THE FULL INTENT OF CREATING THE OBLIGATIONS AND SECURITY INTERESTS DESCRIBED HEREIN AND THEREIN. THE PARTIES ACKNOWLEDGE THAT: (a) THEY HAVE READ SUCH DOCUMENTATION; (b) THEY HAVE BEEN REPRESENTED IN THE PREPARATION, NEGOTIATION AND EXECUTION OF SUCH DOCUMENTATION BY LEGAL COUNSEL OF THEIR OWN CHOICE OR THAT THEY HAVE VOLUNTARILY DECLINED TO SEEK SUCH COUNSEL; (c) THEY UNDERSTAND THE TERMS AND CONSEQUENCES OF THIS NOTE, THE DEED OF TRUST AND ALL RELATED DOCUMENTATION AND THE OBLIGATIONS THEY CREATE; AND (d) THEY ARE FULLY AWARE OF THE LEGAL AND BINDING EFFECT OF THIS NOTE, THE DEED OF TRUST AND THE OTHER DOCUMENTS CONTEMPLATED BY THIS AGREEMENT. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, BORROWERS HEREBY ACKNOWLEDGE THAT THE COMPANY HAS MADE NO REPRESENTATION OR WARRANTY TO BORROWERS CONCERNING THE INCOME TAX CONSEQUENCES OF THE LOAN TO BORROWERS, AND BORROWERS SHALL BE SOLELY RESPONSIBLE FOR ASCERTAINING AND BEARING SUCH TAX CONSEQUENCES. BORROWERS FURTHER ACKNOWLEDGE THAT (i) THE COMPANY MAY, IN ITS SOLE DISCRETION, DETERMINE THAT IT IS REQUIRED UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), AND THE RULES AND REGULATIONS PROMULGATED BY THE INTERNAL REVENUE SERVICE ("IRS") 3 THEREUNDER, TO IMPUTE INTEREST ON THE PRINCIPAL OF THIS NOTE AT THE RATE SET BY THE IRS, (ii) THE AMOUNT OF ANY SUCH IMPUTED INTEREST WOULD BE DEEMED TO BE COMPENSATION INCOME TO EMPLOYEE WHICH WOULD BE SUBJECT TO TAX WITHHOLDING, AND (iii) IF SO DETERMINED BY THE COMPANY, THE COMPANY WOULD REPORT AND WITHHOLD THE REQUIRED AMOUNT OUT OF THE CURRENT COMPENSATION PAID TO EMPLOYEE IN ACCORDANCE WITH THE CODE AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER. BORROWERS: /s/ Thomas W. Steipp ------------------------------------- Thomas W. Steipp /s/ Debra L. Steipp by Thomas W. Steipp Attorney-in-Fact ------------------------------------- Debra L. Steipp 4 PROMISSORY NOTE SECURED BY DEED OF TRUST ---------------------------------------- $400,000 San Jose, California 24 March, 1998 FOR VALUE RECEIVED, the undersigned, Thomas W. Steipp ("Employee") and Debra L. Steipp, husband and wife ("Borrowers"), promise to pay to Symmetricom, Inc., a California corporation (the "Company"), or order, the principal amount of Four Hundred Thousand Dollars ($400,000) together with interest on the outstanding principal balance at the rate of six percent (6%) per annum. The outstanding principal amount and all accrued and unpaid interest on the outstanding principal amount, to the extent not forgiven pursuant to the terms hereof, shall be due and payable to the holder hereof at 2300 Orchard Parkway, San Jose, California 95131, or such other place as the holder hereof may designate, upon the earlier of the following dates (collectively, "Maturity Events"): (i) Five (5) days following the date that Employee resigns from the Company. (ii) Five (5) days following the date that Employee's employment with the Company is terminated for cause. The term "termination for cause" includes, without limitation, dishonesty, commission of a felony, a breach of Employee's fiduciary duty or willful failure to follow a directive of the Company or the Board of Directors of the Company. (iii) Three hundred sixty (360) days following the date that Employee's employment with the Company is terminated without cause. (iv) The date of any sale, conveyance, assignment, alienation or any other form of transfer, whether voluntary or involuntary, of that certain real property commonly known as 15560 Shannon Road, Los Gatos, California (the "Property"), or any part thereof or interest therein; except that the following transfers of the Property shall not be deemed to be a Maturity Event: a) A transfer upon the death of Employee to Employee's surviving spouse (provided the surviving spouse is an obligor hereunder) or to Employee upon the death of Employee's surviving spouse; b) A transfer by an obligor hereof whereby such obligor's spouse becomes a co-owner of the Property; c) A transfer resulting from a decree of dissolution of the marriage or legal separation of Employee and Debra L. Steipp or from a property settlement agreement incidental to such a decree which requires the obligor spouse to assume responsibility for the obligations under this Note and the Deed of Trust (hereinafter defined) and pursuant to which Employee or Debra L. Steipp (whoever is the obligor) becomes the sole owner of the Property; or d) A transfer by one or both obligors under the Note into an inter vivos trust in which one or both obligors are beneficiaries. (v) March 25, 2008. Notwithstanding the foregoing to the contrary, on each of June 25, 1998, June 25, 1999, June 25, 2000 and June 25, 2001 (each, a "Forgiveness Date"), so long as there is then no uncured default hereunder or a default under the Deed of Trust (hereinafter defined), that certain Promissory Note between Borrower and the Company of even date herewith with an original principal amount of $500,000 (the "Other Note"), or the deed of trust securing the Other Note, Employee is still employed by the Company, and no Maturity Event shall have occurred, the principal amount hereof shall be automatically reducedby the sum of One Hundred Thousand Dollars ($100,000) and all accrued and unpaid interest on the outstanding principal amount shall be automatically foregiven, without fee or penalty, and on each such date Borrowers shall be released and relieved from the obligation to repay such amounts to the holder hereof. Any portion of the outstanding principal amount and all accrued and unpaid interest which is not forgiven pursuant to this paragraph shall be due and payable as otherwise set forth in this Note. In the event that any of the following occurs, then unless otherwise prohibited by law, the holder hereof shall have the option, without demand or notice, to declare the entire outstanding principal balance of this Note, together with all accrued and unpaid interest thereon to be immediately due and payable: (i) Borrowers default in the payment of principal or interest when due pursuant to the terms hereof; (ii) Borrowers default in their performance of any obligation contained in the deed of trust encumbering the Property and securing this Note (the "Deed of Trust") or any other deed of trust, security agreement or other agreement (including any amendment, modification or extension thereof) which may hereafter be executed by Borrowers for the purpose of securing this Note; (iii) any representation or warranty contained in this Note, the Deed of Trust, or any other agreement or instrument executed in connection with the loan proves to have been false or misleading in any material respect; (iv) Borrowers default in their obligation to pay any indebtedness or to perform any other obligation which is secured by a deed of trust or other lien on the Property or default under any deed of trust securing such indebtedness; or (v) Borrowers default in their obligation to pay any indebtedness evidenced by any promissory note executed by Borrowers and payable to the holder hereof or there occurs any other default under any deed of trust, mortgage or other document securing repayment of such indebtedness. The principal amount evidenced by this Note shall be used by Borrowers to purchase the Property which shall become the primary residence of Borrowers. This Note shall be secured by a deed of trust given by Borrowers to the Company (the "Deed of Trust"). The Deed of Trust shall be a second-priority deed of trust, subject only to that certain Deed of Trust made by Borrowers to the Company securing that certain Promissory Note Secured by Deed of Trust made by Borrowers in 2 favor of the Company with an original principal amount of Five Hundred Thousand Dollars ($500,000). In addition to causing the execution and delivery of the Deed of Trust, Borrowers shall take any and all further actions that may from time to time be required to ensure that the Deed of Trust creates a valid second-priority lien on the Property in favor of the Company, which shall secure this Note. Borrowers shall furnish evidence reasonably satisfactory to the Company that as of the date of the close of escrow for the Property: (i) Borrowers shall have good and marketable title to the Property; (ii) the consent of no other person or entity shall be required to grant a security interest in the Property to the Company; and (iii) there shall be no deed of trust, mortgage or other encumbrance against the Property or other title defect unless approved by the Company, which approval may be withheld in the Company's sole discretion. If it should hereafter be determined that there are defects against title or matters which could result in defects against title to the Property or that the consent of another person or entity is required to grant to, and perfect in, the Company a valid second-priority lien on the Property, Borrowers shall, promptly on demand by the Company, take all actions necessary to remove such defects and to obtain such consent and grant (or cause to be granted) and perfect such lien on the Property. Failure of Borrowers to comply with the provisions of this paragraph shall be deemed a default under this Note and the Deed of Trust. In the event any amount owed by Borrowers pursuant to this Note is not paid when due, such unpaid amount shall bear interest from the due date until paid at a rate equal to the lower of: (i) ten percent (10%) per annum; or (ii) the maximum rate permitted by law. After such due date, all payments shall be credited first to accrued interest and then to principal. If an action is instituted for collection of this Note, the Borrowers agree to pay court costs and reasonable attorneys' fees incurred by the holder thereof. This Note may be amended or modified, and provisions hereof may be waived, only by the written agreement of Borrowers and the holder hereof. No delay or failure by the holder hereof in exercising any right, power or remedy hereunder shall operate as a waiver of such right, power or remedy, and a waiver of any right, power or remedy on any one occasion shall not operate as a bar or waiver of any such right, power or remedy on any other occasion. Without limiting the generality of the foregoing, the delay or failure by the holder hereof for any period of time to enforce collection of any amounts due hereunder shall not be deemed to be a waiver of any rights of the holder hereof under contract or under law. The rights of the Company under this Note are in addition to any other rights and remedies which the holder hereof may have. This Note shall be governed by and construed in accordance with the laws of the State of California, without regard to the principles of conflicts of laws of that State. This Note may be prepaid at any time without penalty. THIS NOTE, THE DEED OF TRUST AND ALL RELATED DOCUMENTATION ARE EXECUTED VOLUNTARILY AND WITHOUT ANY DURESS OR UNDUE INFLUENCE ON 3 THE PART OR BEHALF OF THE PARTIES HERETO, WITH THE FULL INTENT OF CREATING THE OBLIGATIONS AND SECURITY INTERESTS DESCRIBED HEREIN AND THEREIN. THE PARTIES ACKNOWLEDGE THAT: (a) THEY HAVE READ SUCH DOCUMENTATION; (b) THEY HAVE BEEN REPRESENTED IN THE PREPARATION, NEGOTIATION AND EXECUTION OF SUCH DOCUMENTATION BY LEGAL COUNSEL OF THEIR OWN CHOICE OR THAT THEY HAVE VOLUNTARILY DECLINED TO SEEK SUCH COUNSEL; (c) THEY UNDERSTAND THE TERMS AND CONSEQUENCES OF THIS NOTE, THE DEED OF TRUST AND ALL RELATED DOCUMENTATION AND THE OBLIGATIONS THEY CREATE; AND (d) THEY ARE FULLY AWARE OF THE LEGAL AND BINDING EFFECT OF THIS NOTE, THE DEED OF TRUST AND THE OTHER DOCUMENTS CONTEMPLATED BY THIS AGREEMENT. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, BORROWERS HEREBY ACKNOWLEDGE THAT THE COMPANY HAS MADE NO REPRESENTATION OR WARRANTY TO BORROWERS CONCERNING THE INCOME TAX CONSEQUENCES OF THE LOAN TO BORROWERS, AND BORROWERS SHALL BE SOLELY RESPONSIBLE FOR ASCERTAINING AND BEARING SUCH TAX CONSEQUENCES. BORROWERS FURTHER ACKNOWLEDGE THAT (i) THE COMPANY MAY, IN ITS SOLE DISCRETION, DETERMINE THAT IT IS REQUIRED UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), AND THE RULES AND REGULATIONS PROMULGATED BY THE INTERNAL REVENUE SERVICE ("IRS") THEREUNDER, TO IMPUTE INTEREST ON THE PRINCIPAL OF THIS NOTE AT THE RATE SET BY THE IRS, (ii) THE AMOUNT OF ANY SUCH IMPUTED INTEREST WOULD BE DEEMED TO BE COMPENSATION INCOME TO EMPLOYEE WHICH WOULD BE SUBJECT TO TAX WITHHOLDING, AND (iii) IF SO DETERMINED BY THE COMPANY, THE COMPANY WOULD REPORT AND WITHHOLD THE REQUIRED AMOUNT OUT OF THE CURRENT COMPENSATION PAID TO EMPLOYEE IN ACCORDANCE WITH THE CODE AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER. BORROWERS: /s/ Thomas W. Steipp ------------------------------------- Thomas W. Steipp /s/ Debra L. Steipp by Thomas W. Steipp Attorney-in-Fact -------------------------------------- Debra L. Steipp 4 EX-10.23 9 INTERCOMPANY REVOLVING LOAN AGREEMENT EXHIBIT 10.23 INTERCOMPANY REVOLVING LOAN AGREEMENT ------------------------ This INTERCOMPANY REVOLVING LOAN AGREEMENT ("Loan Agreement"), dated as of -------------------- August 15, 1998, is entered into by and between: (1) SymmetriCom, Inc. ("Lender"); and (2) Linfinity Microelectronics Inc. ("Borrower"). -------- In consideration of the covenants, conditions and agreements set forth herein, the parties agree as follows: ARTICLE 1 DEFINITIONS 1.1 "Advance" shall have the meaning given in Section 2.1 of the Loan ------- Agreement. 1.2 "Business Day" shall mean any day on which commercial banks are not ------------ authorized or required to close in San Jose, -California. 1.3 "Commitment" shall mean an amount equal to Five Million Dollars ---------- ($5,000,000). 1.4 "Default" shall mean any event or circumstance not yet constituting an ------- Event of Default but which, with the giving of any notice or the lapse of any period of time or both, would become an Event of Default. 1.5 "Event of Default" shall have the meaning given to that term in ---------------- Section 5.1. 1.6 "GAAP" shall mean generally accepted accounting principles and ---- practices as promulgated by the Financial Accounting Standards Board and as in effect in the United States of America from time to time, consistently applied. Unless otherwise indicated in this Loan Agreement, all accounting terms used in this Loan Agreement shall be construed, and all accounting and financial computations hereunder or thereunder shall be computed, in accordance with GAAP. 1.7 "Governmental Authority" shall mean any domestic or foreign national, ---------------------- state or local government, any political subdivision thereof, any department, agency, authority or bureau of any of the foregoing, or any other entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. 1.8 "Indebtedness" of any Person shall mean and include the aggregate ------------ amount of, without duplication (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (c) all obligations of such Person to pay the deferred purchase price of property or services (other than accounts payable incurred in the ordinary course of business determined in accordance with generally accepted accounting principles), (d) all obligations under capital leases of such Person, (e) all obligations or liabilities of others secured by a lien on any asset of such Person, whether or not such obligation or liability is assumed, (f) all guaranties of such Person of the obligations of another Person; (g) all obligations created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even if the rights and remedies of the seller or lender under such agreement upon an event of default are limited to repossession or sale of such property), (h) net exposure under any interest rate swap, currency swap, forward, cap, floor or other similar contract that is not entered to in connection with a bona fide hedging operation that provides offsetting benefits to such Person, which agreements shall be marked to market on a current basis, (i) all reimbursement and other payment obligations, contingent or otherwise, in respect of letters of credit. 1.9 "Prime Rate" shall mean the Prime Rate as quoted in the "Money Rates" ---------- column of The Wall Street Journal on the first Business Day of each calendar month. All computations of such interest shall be based on a year of 360 days and actual days elapsed. Such Prime Rate shall remain in effect until it is adjusted on the first Business Day of the following calendar month. 1.10 "Loan Agreement" shall have the meaning set forth in the opening -------------- paragraph of this document. 1.11 "Loan Documents" shall mean and include this Loan Agreement and any -------------- other documents, instruments and agreements delivered to Lender in connection with this Loan Agreement. 1.12 "Obligations" shall mean and include all Advances, debts, liabilities, ----------- and financial obligations, howsoever arising, owed by Borrower to Lender of every kind and description (whether or not evidenced by any note or instrument), direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising pursuant to the terms of any of the Loan Documents, including, without limitation, all interest, fees, charges, expenses, reasonable attorneys' fees (and expenses) and accountants' fees (and expenses) chargeable to Borrower or payable by Borrower hereunder or thereunder. 1.13 "Person" shall mean and include an individual, a partnership, a ------ corporation (including a business trust), a joint stock company, a limited liability company, an unincorporated association, a joint venture or other entity or a Governmental Authority. 1.14 "Termination Date" shall mean the first anniversary of the date of ---------------- this Loan Agreement. ARTICLE 2 ADVANCES 2.1 Terms. Subject to the terms and conditions of this Loan Agreement, ----- Lender agrees to advance to Borrower from time to dine and until the Termination Date, such sums as Borrower may request (the "Advances") but which shall not exceed, in the aggregate principal amount at any one time outstanding, the Commitment. Advances shall be made in lawful currency of the United States of America and shall be made in same day or immediately available funds. Each advance shall be in an amount equal to at least $500,000 or any integral multiple of $100,000 in excess thereof and shall be made three Business Days after written request (or telephonic request confirmed in writing). Subject to the terms and conditions hereof, Borrower may borrow pursuant to this Section 2.1, prepay the Advances and reborrow pursuant to this Section 2. 1. 2.2 Payment of Principal upon Maturity. If not paid earlier, the ---------------------------------- outstanding principal balance of all Advances shall be due and payable to the Lender on the Termination Date. -2- 2.3 Interest Payments. Interest on the outstanding principal balance under ----------------- the Advances shall accrue at the Prime Rate in effect. All computations of such interest shall be based on a year of 360 days and actual days elapsed for each day on which any principal balance is outstanding under the terms of the Loan Agreement. 2.4 Interest Payments. All accrued and unpaid interest shall be due on the ----------------- first Business Day of each month. If not paid earlier, all outstanding accrued interest hereunder shall be due and payable to the Lender on the Termination Date. 2.5 Other Payment Terms. ------------------- (a) Place and Manner. Borrower shall make all payments due to Lender hereunder in lawful money of the United States and in same day or immediately available funds. (b) Date. Whenever any payment due hereunder shall fall due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall be included in the computation of interest or fees, as the case may be. (c) Default Rate. From and after the occurrence of an Event of Default and during the continuance thereof, Borrower shall pay interest on all Obligations not paid when due, from the date due thereof until such amounts are paid in full at a per annum. rate equal to the two (2) percentage points in excess of the rate otherwise applicable to Advances. All computations of such interest shall be based on a year of 360 days and actual days elapsed. 2.6 Loan Account. The Obligations of Borrower to Lender hereunder shall be ------------ evidenced by one or more accounts or records maintained by Lender in the ordinary course of business. The accounts or records maintained by Lender shall be presumptive evidence of the amount of such Obligations, and the interest and principal payments thereon. Any failure so to record or any error in so doing shall not, however, limit, increase or otherwise affect the obligation of Borrower hereunder to pay any amount owning hereunder. Upon Lender's request, Borrower shall execute a promissory note in favor of Lender. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF BORROWER To induce Lender to enter into this Loan Agreement and to make Advances hereunder, Borrower represents and warrants to Lender as follows: 3.1 Due Incorporation, Qualification, etc. Borrower is a corporation duly ------------------------------------- organized, validly existing and in good standing under the laws of its state of incorporation. 3.2 Authority. The execution, delivery and performance by Borrower of each --------- Loan Document to be executed by Borrower and the consummation of the transactions contemplated thereby (i) are within the power of Borrower and (ii) have been duly authorized by all necessary actions on the part of Borrower. -3- 3.3 Enforceability. Each Loan Document executed, or to be executed, by -------------- Borrower has been, or will be, duly executed and delivered by Borrower and constitutes, or will constitute, a legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to or affecting the enforcement of creditors' rights generally and general principles of equity. ARTICLE 4 CONDITIONS TO MAKING ADVANCES Lender's obligation to make the initial Advance and each subsequent Advance is subject to the prior satisfaction or waiver of all the conditions set forth in this Article 4. 4.1 Principal Loan Documents. Borrower shall have duly executed and ------------------------ delivered to Lender: (a) the Loan Agreement; and (b) such other documents, instruments and agreements as Lender may reasonably request. 4.2 Representations and Warranties Correct. The representations and -------------------------------------- warranties made by Borrower in Article 3 hereof shall be true and correct as of the date on which each Advance is made and after giving effect to the making of the Advance. The submission by Borrower to Lender of a request for an Advance shall be deemed to be a certification by the Borrower that as of the date of borrowing, the representations and warranties made by Borrower in Article 3 hereof are true and correct. 4.3 No Event of Default or Default. No Event of Default or Default has ------------------------------ occurred or is continuing. 4.4 Total Outstanding Advances. The total aggregate principal amount of -------------------------- outstanding Advances does not exceed the Commitment. ARTICLE 5 EVENTS OF DEFAULT 5.1 Events of Default. The occurrence of any of the following shall ----------------- constitute an "Event of Default" under this Loan Agreement and the Note: (a) Failure to Pay. Borrower shall fail to pay (i) the principal amount of all outstanding Advances on the Termination Date hereunder; (ii) any interest, Obligation or other payment required under the terms of this Loan Agreement or any other Loan Document on the date due and such failure shall continue for ten (10) Business Days after Borrower's receipt of Lender's written notice thereof to Borrower; or (iii) any Indebtedness (excluding Obligations) owed by Borrower to Lender on the date due and such failure shall continue for ten (10) Business Days after Borrower's receipt of Lender's written notice thereof to Borrower. (b) Breaches of Covenants. Borrower shall fail to observe or perform any other covenant, obligation, condition or agreement contained in this Loan Agreement or any other Loan Document and (i) such failure shall continue for ten (10) Business Days, or (ii) if such failure is not curable within such ten (10) Business Day period, but is reasonably capable of cure within thirty (30) Business Days, either (A) such failure -4- shall continue for thirty (30) Business Days or (B) Borrower shall not have commenced a cure in a manner reasonably satisfactory to Lender within the initial ten (10) Business Day period; or (c) Representations and Warranties. Any representation, warranty, certificate, or other statement (financial or otherwise) made or furnished by or on behalf of Borrower to Lender in writing in connection with any of the Loan Documents, or as an inducement to Lender to enter into this Loan Agreement, shall be false, incorrect, incomplete or misleading in any material respect when made or furnished; or (d) Voluntary Bankruptcy or Insolvency Proceedings. Borrower shall (i) apply for or consent to the appointment of a receiver, trustee, liquidation or custodian of itself or of all or a substantial part of its property, (ii) be unable, or admit in writing its inability, to pay its debts generally as they mature, (iii) make a general assignment for the benefit of its or any of its creditors, (iv) be dissolved or liquidated in full or in part, (v) become insolvent (as such term is defined in 11 U.S. C. (S) 10 1 (32), as amended from time to time), (vi) commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or consent to any such relief or to the appointment of or taking possession of its property by any official in an involuntary case or other proceeding commenced against it, or (vii) take any action for the purpose of effecting any of the foregoing; or (e) Involuntary Bankruptcy or Insolvency Proceedings. Proceedings for the appointment of a receiver, trustee, liquidator or custodian of Borrower or of all or a substantial part of the property thereof, or an involuntary case or other proceedings seeking liquidation, reorganization or other relief with respect to Borrower or the debts thereof under any bankruptcy, insolvency or other similar law now or hereafter in effect shall be commenced and an order for relief entered or such proceeding shall not be dismissed or discharged within sixty (60) calendar days of commencement. 5.2 Rights of Lender upon Default. ----------------------------- (a) Acceleration. Upon the occurrence or existence of any Event of Default described in Sections 5. 1(d) and 5. l(e), automatically and without notice or, at the option of Lender, upon the occurrence of any other Event of Default, all outstanding Obligations payable by Borrower hereunder shall become immediately due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the other Loan Documents to the contrary notwithstanding. (b) Cumulative Rights, etc. The rights, powers and remedies of Lender under this Loan Agreement shall be in addition to all rights, powers and remedies given to Lender by virtue of any applicable law, rule or regulation of any Governmental Authority, any transaction contemplated thereby or any other agreement, all of which rights, powers, and remedies shall be cumulative and may be exercised successively or concurrently without impairing Lender's rights hereunder. ARTICLE 6 MEERGER, ASSET SALE OR OTHER DISPOSITION 6.1 Rights of Lender Upon Merger, Asset Sale or Other Disposition of the -------------------------------------------------------------------- Borrower. In the event of a merger of the Borrower with or into another - -------- corporation, or the sale of substantially all of the assets of the Borrower, or any other disposition of the Borrower, automatically and without notice, all outstanding -5- Obligations payable by Borrower hereunder shall become immediately due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the other Loan Documents to the contrary notwithstanding. ARTICLE 7 MISCELLANEOUS 7.1 Notices. Except as otherwise provided herein, all notices, requests, ------- demands, consents, instructions or other communications to or upon Lender or Borrower under this Agreement or the other Loan Documents shall be in writing and telecopier, mailed or delivered to each party at its telecopier number or address set forth below (or to such other telecopier number or address for any party as indicated in any notice given by that party to the other party). All such notices and communications shall be effective (a) when sent by Federal Express or other overnight service of recognized standing, on the Business Day following the deposit with such service; (b) when mailed by registered or certified mail, first class postage prepaid and addressed as aforesaid through the United States Postal Service, upon receipt; (c) when delivered by hand, upon delivery; and (d) when telecopier, upon confirmation of receipt; provided, --------- however, that any notice delivered to Lender under Article 2 shall not be - ------- effective until received by Lender. LENDER: SymmetriCom, Inc. 2300 Orchard Parkway San Jose, CA 95131 Attention: Mary Rorabaugh BORROWER: Linfinity Microelectronics Inc. 11861 Western Avenue Garden Grove, CA 92841 Attention: Linda Reddick 7.2 Waivers; Amendments. Any term, covenant, agreement or condition of ------------------- this Loan Agreement or any other Loan Document may be amended or waived if such amendment or waiver is in writing and is signed by Borrower and Lender. No failure or delay by lender in exercising any right hereunder shall operate as a waiver thereof or of any other right nor shall any single or partial exercise of any such right preclude any other further exercise thereof or of any other right. A waiver or consent given hereunder shall be effective only if in writing and in the specific instance and for the specific purpose for which given. 7.3 Successors and Assigns. This Loan AGREEMENT AND THE OTHER Loan ---------------------- Documents shall be binding upon and inure to the benefit of Borrower, Lender and their respective successors and permitted assigns, except that Borrower may not assign or transfer (and any such attempted assignment or transfer shall be void) any of its rights or obligations under any Loan Document without the prior written consent of Lender. 7.4 Set-off. In addition to any rights and remedies of Lender provided by ------- law, Lender shall have the right, without prior notice to Borrower, any such notice being expressly waived by Borrower to the extent permitted by applicable law, upon the occurrence and during the continuance of a Default or an Event of Default, to set-off and apply against any Indebtedness, whether matured or unmatured, of Borrower to Lender (including, without limitation, the Obligations), any amount owing from Lender to Borrower. The aforesaid -6- right of set-off may be exercised by Lender against Borrower or against any trustee in bankruptcy, debtor-in-possession, assignee for the benefit of creditors, receiver or execution, judgment or attachment creditor of Borrower or against anyone else claiming through or against Borrower or such trustee in bankruptcy, debtor-in-possession, assignee for the benefit of creditors, receiver, or execution, judgment or attachment creditor, notwithstanding the fact that such right of set-off shall not have been exercised by Lender prior to the occurrence of a Default or an Event of Default. Lender agrees promptly to notify Borrower after any such set-off and application made by Lender, provided -------- that the failure to give such notice shall not affect the validity of such set- off and application. 7.5 No Third Party Rights. Nothing expressed in or to be implied from this --------------------- Agreement or any other Loan Document is intended to give, or shall be construed to give, any Person, other than the parties hereto and thereto and their permitted successors and assigns, any benefit or legal or equitable right, remedy or claim under or by virtue of this Agreement or any other Loan Document. 7.6 Partial Invalidity. If at any time any provision of this Loan ------------------ Agreement or any of the Loan Documents is or becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction, neither the legality, validity or enforceability of the remaining provisions of the Loan Agreement or such other Loan Documents, nor the legality, validity or enforceability of such provision under the law of any other jurisdiction, shall in any way be affected or impaired thereby. 7.7 Governing Law. This Loan Agreement and each of the other Loan ------------- Documents shall be governed by and construed in accordance with the laws of the State of California without reference to conflicts of law rules. 7.8 Construction. Each of this Loan Agreement and the other Loan Documents ------------ is the result of negotiations among, and has been reviewed by, Borrower, Lender and their respective counsel. Accordingly, this Loan Agreement and the other Loan Documents shall be deemed to be the product of all parties hereto, and no ambiguity shall be construed in favor of or against Borrower or Lender. 7.9 Entire Agreement. This Loan Agreement and the other Loan Documents, ---------------- taken together, constitute and contain the entire agreement of Borrower and Lender with respect to the subject matter hereby and supersede any and all prior agreements, negotiations, correspondence, understandings and communications among the parties, whether written or oral, respecting the subject matter hereof. -7- IN WITNESS WHEREOF, the parties have executed this Loan Agreement as of the date first set forth above. BORROWER: Linfinity Microelectronics Inc. By: /s/ James Peterson ----------------------------------------- Name: James Peterson Title: President & Chief Operating Officer LENDER: SymmetriCom, Inc. By: /s/ Mary A. Rorabaugh ----------------------------------------- Name: Mary Rorabaugh Title: Vice President, Finance -8- EX-10.24 10 PROMISSORY NOTE ISSUED BY JAMES PETERSON EXHIBIT 10.24 PROMISSORY NOTE $150,000.00 Garden Grove, California July 13, 1998 FOR VALUE RECEIVED, James Peterson ("Maker") promises to pay Linfinity Microelectronics Inc., a Delaware corporation (the "Company"), or order, the principal sum of One Hundred Fifty Thousand U.S. Dollars ($150,000.00). Principal on this note shall be due and payable on demand. Maker may at any time prepay, without penalty, all or any portion of the principal owing hereunder. If Maker files a petition in bankruptcy or is the subject of any proceeding under any bankruptcy or insolvency laws, then this Promissory Note shall be immediately due and payable. Neither the failure of the Company to promptly exercise any rights or remedies under this Promissory Note or with respect hereto, nor the failure of the Company to demand strict performance of any obligation of Maker hereunder shall constitute a waiver of any of the Company's rights or remedies. Maker waives presentment for payment, demand, protest and notice of protest for nonpayment of this Promissory Note. Maker agrees to pay all costs and expenses, including without limitation attorneys' fees, expended or incurred by the Company in connection with the enforcement of this Promissory Note and the collection of amounts due hereunder. This Promissory Note shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of California. "MAKER" /s/ James Peterson ---------------------------- James Peterson EX-21.1 11 SUBSIDIARIES OF THE COMPANY EXHIBIT 21.1 SYMMETRICOM, INC. SUBSIDIARIES OF THE COMPANY Analog Solutions, Inc., a California corporation Telecom Solutions, Inc., a Delaware corporation Telecom Solutions Puerto Rico, Inc., a Delaware corporation Linfinity Microelectronics Inc., a Delaware corporation Telecom Solutions (Europe) Limited, a United Kingdom Corporation Navstar Systems Ltd., a United Kingdom Corporation Manufacturing Solutions (Puerto Rico), Inc., Delaware Corporation EX-23.1 12 INDEPENDENT AUDITORS' CONSENT EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE We consent to the incorporation by reference in Registration Statement Nos. 33- 38384, 33-3456, 33-11317, 2-70291, 33-56042, 33-57163, 333-00333, 333-21815, and 333-47369 on Form S-8 of our report dated July 22, 1998 (September 3, 1998 as to the last sentence of Note I), appearing in this Annual Report on Form 10-K of Symmetricom, Inc. for the year ended June 30, 1998. Our audits of the consolidated financial statements referred to in our aforementioned report also included the consolidated financial statement schedule of Symmetricom, Inc., listed in Item 14(a)2. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Deloitte & Touche LLP - --------------------------------------- DELOITTE & TOUCHE LLP San Jose, California September 21, 1998 EX-27.1 13 FINANCIAL DATA SCHEDULE
5 1,000 YEAR JUN-30-1998 JUL-01-1997 JUN-30-1998 31,369 2,973 16,826 479 16,798 75,744 77,332 38,998 114,893 20,188 0 0 0 23,892 0 114,893 120,581 120,581 76,306 76,306 0 0 838 (4,140) (2,610) (1,530) 0 0 0 (1,530) (.10) (.10)
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